Tesco tumbles on Dunnhumby sale 'fail' fears

LONDON (ShareCast) - (ShareCast News) - Tesco (Xetra: 852647 - news) shares have been hit by the prospect the grocer will have to sell its Dunnhumby data analysis arm for less than half it had hoped, and might have to resort to a rights issue. Some bidders for the division, which include advertising giants WPP (LSE: WPP.L - news) and private equity firm General Atlantic as well as buyout groups BC Partners and CVC (Taiwan OTC: 4744.TWO - news) , have begun working on offers nearer £700m, the Financial Times reported.

Recent results for Dunnhumby disappointed badly, with profitability halved due to the renegotiation of a contract with key US client Kroger, while bidder have apparently also found it hard to secure deal financing.

Tesco, whose new chief executive Dave Lewis had been banking on a bumper sale to help improve its £22bn debt-ridden balance sheet, had hoped that restructuring Dunnhumby's deal with major US supermarket group Kroger would bolster its valuation by allowing more freedom to work with other US groups.

Dunnhumby is wholly owned by Tesco and crunches the data from the supermarket group's Clubcard loyalty card scheme.

These fresh reports are similar to City rumours that emerged in June.

Analyst Mike van Dulken of Accendo Markets said: "In the midst of a significant restructuring and turnaround operation to combat increased market and price pressure, an accounting scandal, heavy £7bn asset write-downs and a £6.4bn loss last year, a sale 'fail' would be a big blow for the company and its shares given their recovery from near 15-year lows hinging very much on the future sale of that data analysis business and its Homeplus operations in Korea.

"Should either or indeed both deals struggle, a cash call would surely be necessary to help put the company on a more solid footing, easily sending the shares back below the key 200p mark and towards the depressed 156p from whence they bounced last December."