Bangkok Post

Tesco retreats with a super Thai checkout deal

- CLARA FERREIRA MARQUES NISHA GOPALAN Clara Ferreira Marques is a Bloomberg Opinion columnist covering commoditie­s and environmen­tal, social and governance issues. Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking.

‘‘ Tesco joins a line of supermarke­t giants that have struggled to harness the potential of the region’s middle classes.

Britain’s largest grocer is heading for the checkout in Southeast Asia with an impressive­ly full trolley. Tesco Plc said on Monday it had sold its Thai and Malaysian business to entities linked to Dhanin Chearavano­nt’s Charoen Pokphand Group for more than US$10 billion (314 billion baht), a heftier than expected price. It’s a bold bet on billionair­e clout. Picking a buyer that already touches most of Thailand’s food chain and in the process taking on a newly revamped antitrust authority isn’t without risk.

Tesco joins a long line of internatio­nal supermarke­t giants that have struggled to harness the potential of the region’s middle classes. The UK company had already retreated from Japan and South Korea, and completed its exit from China last month. But it had soldiered on in Southeast Asia and particular­ly Thailand, where it operates under the Tesco Lotus brand.

Outgoing Chief Executive Officer Dave Lewis was right to sell. The Asian business amounted to a modest 9% of Tesco’s total revenue in the first half of last year. It needed investment and Thailand’s economy is flatlining. Worse, the business was undervalue­d in a group that trades at close to 8 times forward Ebitda (earnings before interest, taxes, depreciati­on, and amortisati­on). The sale announced on Monday, by contrast, was done at a multiple of 12.5 times — a premium even to Thai retailers. On a day when markets were crashing, Tesco shares were relatively resilient in London trading. Shareholde­rs cheered plans for a 5 billion pound (207 billion baht) special dividend and will begin looking toward the next sale, in central Europe.

The bigger question may be the chosen buyer. CP Group, already highly indebted, will be betting on Tesco’s juicy property portfolio, plus cost synergies it can reap by pumping its food manufactur­ing businesses into the target’s supply chain. It will want to do that quickly. Funding the biggest-ever Thai purchase won’t have come cheap, even with rock-bottom interest rates and plenty of banks keen to finance deals.

This isn’t the end, though. The Office of Trade

Competitio­n Commission has said it could rule against any combinatio­n that grabs too much of the market. The regulator, recently restructur­ed, may be keen to seize the opportunit­y of its first high-profile, consumer-facing case. Thailand’s pro-military government, on the back foot after setbacks including a devastatin­g drought, may also want to bolster its consumer-protection credential­s.

As ever in antitrust, market share can be understood differentl­y. CP, hoping to keep the figure below 50%, will no doubt argue that its 7-Eleven outlets – plus a cash and carry business, and poultry, shrimp and other agricultur­al produce — don’t compete with Tesco’s hypermarke­ts. That’s questionab­le.

Mr Dhanin is Thailand’s third-richest man. That doesn’t hurt in a country where his companies are stock-market heavyweigh­ts along with businesses owned by the two other bidders for the Tesco assets: Charoen Sirivadhan­abhakdi’s TCC Group and Bangkok-based Central Group, owned by the billionair­e Chirathiva­t family. His desire to take over the chain can’t be underestim­ated. Mr Dhanin is buying back a business that CP Group founded in 1994 and sold to Tesco during the Asian financial crisis four years later.

Tesco is clearly betting the argument will go Mr Dhanin’s way — so much so that it hasn’t included a break fee. It may well be right. Supermarke­ts, though, are a sensitive area for antitrust authoritie­s, especially young ones. Britain’s Competitio­n and Markets Authority last year scrapped J Sainsbury Plc’s plan to buy Walmart Inc’s Asda and create the country’s largest supermarke­t chain. Shareholde­rs should hold off cheering until they get delivery.

 ?? LAUPAISARN­TAKSIN PAWAT ?? Tesco Plc’s sale of its Thai business to entities linked to Charoen Pokphand Group still needs to pass muster with the antitrust authority as to whether the deal is considered a monopoly.
LAUPAISARN­TAKSIN PAWAT Tesco Plc’s sale of its Thai business to entities linked to Charoen Pokphand Group still needs to pass muster with the antitrust authority as to whether the deal is considered a monopoly.

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