Tesco Plc, the U.K.’s biggest supermarket chain, has received first-round offers from private-equity firms including Carlyle Group LP and KKR & Co. for its South Korean business, people familiar with the matter said.
Affinity Equity Partners Ltd., CVC Capital Partners Ltd. and MBK Partners Ltd. have also bid for the Homeplus supermarket unit, said the people, who asked not to be named because the information is private. Another potential buyer is Orion Corp., the Seoul-based foodmaker known for its popular Choco Pie snacks, which said Thursday it has made a preliminary offer. Homeplus could fetch more than $5 billion, people with knowledge of the matter said earlier this month.
Tesco, which in April reported the biggest annual loss in its 96-year history, has been weighing divestitures as it seeks to plug a debt hole of about 21.7 billion pounds ($34.1 billion). Chief Executive Officer Dave Lewis is seeking to revive the company’s market-leading grocery business in the U.K., where sales are falling amid a price war fueled by the expansion of German discounters Aldi and Lidl.
The buyout firms may decide to partner for the Homeplus purchase, as the acquisition would be too large for any one fund, the people said. Tesco targets to reach an agreement with one bidding group by the middle of August, one person said.
Maeil Business Newspaper reported the bids earlier Thursday in Seoul, citing an unidentified person in the banking industry. Spokesmen for Carlyle, CVC, MBK and Tesco declined to comment. Representatives for Affinity and KKR didn’t immediately respond to requests for comment.
Tesco shares rose 0.9 percent to 217.65 pence at 11:09 a.m. in London.
Lewis, who joined in September less than a month before the discovery of an accounting scandal, is considering divestitures as tries to lower the retailer’s debt. Tesco said in January it hired Goldman Sachs Group Inc. to explore strategic options for its Dunnhumby data-analytics unit, which analysts have estimated may fetch 1 billion pounds to 2 billion pounds.
The U.K. grocer entered the Korean market under former Chief Executive Officer Terry Leahy in 1999, with a 130 million-pound investment into a joint venture with a Samsung Group affiliate. Tesco initially held an 81 percent stake, before buying Samsung out of the venture in stages.
Because of a national restriction on Sunday opening hours for hypermarkets, Homeplus’s same-store sales have been in decline since 2011, dropping 4 percent last year. Even so, South Korea remains Tesco’s largest international market, accounting for about 9 percent of group sales.
Homeplus, which has 935 stores in South Korea, is the country’s third-largest discount store with a 25 percent share, following E-Mart Co. and Lotte Mart, according to an E-Mart’s regulatory filing in March.
South Korea’s discount store market has grown almost 50 percent to 46.6 trillion won ($42 billion) last year from 2009, according to Lotte Shopping Co.’s annual report filed in March.
Tesco is scheduled to report first-quarter sales Friday, the same day it holds its annual general meeting in London.