Tesco agreed to sell its Turkish grocery business Kipa and restaurant chain Giraffe in two separate transactions as the UK’s largest grocer seeks to cut debt and focus on its core operations.
The sale of its 95.5 per cent stake in Kipa to Migros will fetch £30 million ($43.4 million) and reduce Tesco’s total indebtedness by £110 million, the Cheshunt, England-based retailer said in a statement Friday.
“The sale of Kipa reflects the particular strategic challenge we have faced in Turkey as a small regional player in a highly competitive market,” Tesco said in the statement.
“It removes the need for the sustained investment required to enable the business to compete independently.“
The divestiture is another step in Chief Executive Officer Dave Lewis’s efforts to recapture the company’s investment-grade credit rating.
The company’s financial position has been weakened by a price war in the UK, coupled with onerous leases on stores and pension obligations.
As of April, Tesco’s total indebtedness stood at £15.5 billion.
Tesco’s Turkish business generated revenues of £501 million in the company’s latest financial year, equivalent to 0.9 per cent of group sales. Tesco acquired Kipa in 2003.
“Tesco Kipa did not have the funds to build scale,“ Charles Allen, an analyst at Bloomberg Intelligence, said by e-mail.
“It’s a competitive market and the market leader Bim is an extremely effective hard discounter.”
Boparan Restaurant, owner of the Harry Ramsden’s restaurant chain, agreed to acquire Giraffe. No financial terms of the sale were disclosed.
Tesco acquired the Giraffe restaurant chain in 2013 for £48.6 million in an effort to make its large stores more attractive destinations for shoppers.
The company said its chain of in-store cafes will meet the demand for in-store dining.
© 2016 Bloomberg L.P
