Tesco Plots Exit From Giraffe Chain

Tesco (Xetra: 852647 - news) is preparing to cut its losses on Giraffe, the restaurant chain bought during the disastrous reign of its former boss, as it seeks to rebuild its core UK supermarkets business.

Sky News has learnt that private equity firms and other potential bidders are being quietly sounded out about their interest in buying Giraffe, which trades from about 60 sites across the UK.

The business was acquired by Tesco during Philip Clarke's tenure as chief executive in 2013 as he sought to diversify the retailer's appeal and find ways of utilising excess space in some of its redundant stores.

Tesco paid just £50m for Giraffe, and any disposal would generate proceeds representing a mere rounding error in the context of the company's balance sheet.

However, sources said that Dave Lewis, who replaced Mr Clarke, wanted to continue to dispose of businesses and brands which either dilute Tesco's margins or act as a distraction from its principal revival mission.

One insider added that a sale of Giraffe was not yet a certainty and would depend upon the terms of a deal.

The timing of a formal auction was unclear on Thursday.

Along with Harris (Stuttgart: HRS.SG - news) + Hoole, the chain of coffee shops, and Blinkbox, a digital content business which was subsequently sold and shut, the purchase of Giraffe formed part of Mr Clarke's efforts to make Tesco stores a more exciting, family-friendly destination.

His tenure ended in disgrace in 2014, though, when he was sacked after a string of profit warnings.

Shortly after Mr Lewis arrived, Tesco was forced to restate its profits, sending its shares tumbling and sparking a criminal probe by the Serious Fraud Office that has yet to conclude.

The company has begun to see a modest turnaround in its performance amid continuing competition with discounters Aldi and Lidl, and its more traditional rivals: J Sainsbury (Other OTC: JSAIY - news) , Wm Morrison and the struggling Asda.

In January, Tesco said it had seen like-for-like sales growth in the UK of 1.3% during the crucial six-week period to January 9.

Mr Lewis has sanctioned the sale of Tesco's business in South Korea for £4bn, but called off an auction of Dunnhumby, its data analytics business, after it failed to attract sufficiently attractive offers.

Giraffe has lost money in recent years, partly as a result of the cost of opening new sites.

Accounts filed at Companies House show that the restaurant chain lost more than £4m in the 53 weeks to March 1, 2015.

Although Tesco recently took full ownership of Harris + Hoole, insiders believe that represented a "tidying-up exercise" ahead of a likely attempt to offload it.

A Tesco spokesman said it didn't comment on "rumour and speculation".