Tesco explores options for Fresh & Easy exit

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Tesco (Other OTC: TSCDY - news) chief executive Philip Clarke will travel to the US after the Easter weekend to try to strike a deal to allow the supermarket group to exit its loss-making Fresh & Easy business.

The retailer is understood to have held talks with rivals Aldi and Trader Joe’s about selling Fresh & Easy, however a break-up of the business is considered the most likely option.

Tesco, the world’s third-largest retailer, opened Fresh & Easy in 2007 but it has been dogged by the financial crisis and criticism over its offering.

Mr Clarke effectively put the business up for sale in December when he initiated a strategic review of Fresh & Easy and hired Greenhill to advise Tesco.

Mr Clarke has pledged to update the market on the progress of the strategic review on April 17, when the retailer posts its full-year results.

Tesco has invested more than £1bn into the California-based chain and faces a loss of hundreds of millions of pounds upon leaving the US business.

The options for Tesco include selling Fresh & Easy to a rival, selling off a stake in the business, or closing the business and disposing of the assets piecemeal. Tesco has already started to sell Fresh & Easy refrigeration units, and the retailer’s 220 East Coast stores and distribution centre could be attractive to property developers.

A spokesman for Tesco said: “We don’t comment on speculation. We’re carrying out a strategic review, as announced in December, and will update in April.”

Tesco’s arrival in the US was the most ambitious part of Sir Terry Leahy’s international expansion drive while chief executive. In his book, Management in 10 Words, Sir Terry said he would accept responsibility if Fresh & Easy failed.

“If they [the critics of Fresh & Easy] are proved right, it will have been my responsibility as CEO and a clear example that goals are easy to set, incredibly difficult to achieve and must carry a clear accountability,” he wrote.

Shares in Tesco have rise by almost 15pc since Mr Clarke announced the review of Fresh & Easy.

The shares have been supported by an improvement in Tesco’s UK performance, with the company reporting a 1.8pc increase in like-for-like sales over the vital Christmas trading period.

Analysts at Deutsche Bank (Xetra: 514000 - news) have forecast that Tesco will report a fall in annual profits from £3.84bn to £3.43bn for the year to the end of February.

The shares rose 3.4 to 381.1p.