By Park Si-soo
Leading private equity funds (PEFs) are competing for stakes in Home plus, one of the nation’s biggest retail stores, officials said, Sunday.
The monetary value of the retail chain owned by British retail giant Tesco was estimated at between 5 and 7 trillion won, they said. Citing this, the deal will take longer period before there is complete closure. HSBC Securities is a lead manager for the mega deal.
The deadline for bids has been set for today. Home plus was put up for sale in June this year by ailing Tesco because it is desperate to improve its deteriorating financial soundness.
A preferred bidder will be chosen in September and the deal may be completed this year.
Asia-based Affinity Equity Partners is said to have partnered with U.S. private equity firm KKR & Co for the deal, while Carlyle Group has joined forces with Singapore’s GIC.
MBK Partners has joined with Goldman Sachs and will seek equity funding from Korea’s National Pension Fund, according to people familiar with the deal.
Orion, a Seoul-based confectionary maker, was not shortlisted but remains interested in the sale, they said. Hyundai Department Store is also known to be interested in the deal.
Home plus, which has more than 400 outlets here, is valued at about 7 trillion won ($5.86 billion), which could be the second-biggest buyout in the Asian consumer sector, according to Reuters.
The forming of the teams by the private equity firms indicates that they see growth potential with Home plus as well as Korea’s retail industry. It also reflects that they feel the need to share risks because of the tough nature of Korea’s retail market.
Simply put, Korea’s retail market is a double-edged sword.
Korea’s malls and department stores were hit by a sharp fall in sales over recent months due to fears about the Middle East Respiratory Syndrome (MERS) outbreak.
Yet they are expected to recover during the second half of the year with the government’s stimulus plans focused on boosting domestic spending, which will cause Home plus sales to rebound.
At the same time, conventional retailers feel challenged by online trade. A growing number of people opt for online shopping malls due to convenience, casting a pall over the growth outlook for offline retailers such as Home plus.
Some analysts say the company could be sold at a price lower than its estimated value of 7 trillion won.
Home plus is Tesco’s largest business outside the United Kingdom, with annual revenue of 7.05 trillion won ($5.9 billion) in 2014.
The firm’s property holdings, consisting mainly of stores, had a book value of 3.09 trillion won as of the end of February, according to a regulatory filing.
Tesco, whose credit rating was cut to “junk” status by Moody’s and S&P in January, is battling to recover from an accounting scandal and reverse its market share losses in Britain to discount chains Aldi and Lidl.