CP Group buys Tesco’s Thailand and Malaysia business for USD 10.6 billion

Published on
March 9, 2020

The CP Group, the parent company of Charoen Pokphand Foods, has moved to purchase Tesco Asia for USD 10.6 billion (EUR 9.3 billion).

The transaction includes all of Tesco’s operations in Thailand and Malaysia, including 1,967 stores across Tesco Thailand that serve more than 13 million customers weekly, with around GBP 4.1 billion (USD 5.4 billion, EUR 4.7 billion) in annual revenue, and 68 Tesco stores in Malaysia with approximately GBP 800 million in revenue (USD 1.05 billion, EUR 915.4 million). The deal also includes Ek-Chai, a subsidiary of Tesco Stores (Thailand) Limited, which operates six distribution centers and two hubs serving Thailand, as well as Tesco’s two distribution centers in Malaysia.

“This joint investment will boost sales of both Tesco and CPF. Given the fact that Tesco Asia has been enjoying the strong operating results consistently, coupled with its highly experienced management and operating teams capable of adapting to changing business and market environment, CPF firmly believes that this investment with Tesco Asia will further enhance the already impressive operating results," CP Group stated.

The CP Group completed the transaction a cash and debt-free basis, split amongst its various subsidiaries, including C.P. Retail Development Company Limited, Charoen Pokphand Holding Co., CP All Public Limited Company, and C.P. Merchandising Co., a wholly owned subsidiary of CP Foods. The purchase was made at a 12.5x multiple of enterprise value per earnings before interest, tax, depreciation, and amortization (EBITDA), the group said, and the deal is expected to close by the second half of 2020.

CP Foods CEO Prasit Boondoungprasert said in a press release the “is aimed to further strengthen its value chain in term of distribution channels in Thailand and Malaysia and enhancing the range of consumer options in this space.”

“CPF is confident that the investment presents exciting opportunities for enhancing Thai and Malaysian consumer experiences in an already highly competitive sector,” Boondoungprasert said.

The deal is subject to a series of conditions as well as approval by Tesco shareholders, by the Office of the Trade Competition Commission of Thailand, and by the Ministry of Domestic Trade and Consumers Affairs of Malaysia.

Tesco CEO Dave Lewis said in a separate release the deal “will further de-risk the Tesco business by reducing indebtedness.” Proceeds will be used to pay a GBP 2.5 billion (USD 3.3 billion, EUR 2.9 billion) pension contribution that Lewis said should eliminate the company’s current funding deficit and “significantly reduce the prospect of having to make further pension deficit contributions in the future.”

"This sale releases material value and allows us to further simplify and focus the business, as well as to return significant value to shareholders,” Lewis said. “I am confident that the agreement we have reached with CP Group presents an exciting opportunity for their continued success."

Additionally, the company will return approximately GBP 5 billion (USD 6.6 billion, EUR 5.7 billion) to its shareholders via a special dividend, Lewis said. Tesco’s board of directors unanimously backs the sale, finding it “to be in the best interests of all stakeholders,” according to Lewis.

Lewis said Tesco “will be a significantly more focused business” after the transaction with its 3,769 stores in the United Kingdom and Ireland giving it a 27 percent market share there, and an additional 895 stores in Central Europe – and in particular, the Czech Republic, Slovakia, Hungary, and Poland – also being a focus. The group also operates Booker, its wholesale business, and Tesco Bank, a retail bank serving six million customers. The company sees opportunities for growth in online grocery sales, convenience, catering, delivery, and wholesale services, it said.

“The board is encouraged by the growth and value creation opportunities it sees across the group,” the company said.

Photo courtesy of Aimpol Buranet/Shutterstock

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