Tesco share price subdued as grocer offloads Giraffe and Turkish units
Shares in Tesco (LON:TSCO) have fallen into the red this morning, underperforming the broader London market, after the blue-chip grocer announced that it had agreed to sell its loss-making restaurant business Giraffe, and its Turkish business Kipa, confirming media reports earlier during the week. The move comes as the group’s chief executive Dave Lewis strives to revive Tesco’s fortunes by offloading non-core assets and sharpening the group’s focus on its supermarket business.
As of 08:18 BST, Tesco’s share price had lost 1.33 percent to 155.80p, underperforming the broader London market, with the FTSE 100 index currently 0.78 percent worse off at 6,182.95 points. The shares have lost over a quarter of their value over the past year, but are up nearly four percent in the year-to-date.
Tesco announced in a statement this morning that it had inked a deal to sell its 95.5-percent controlling stake in the Kipa business in Turkey to Migros, another Turkish-owned retailer. Under the terms of the deal, the FTSE 100 grocer will receive about £30 million in cash proceeds, and will further benefit from a reduction of around £110 million in total indebtedness.
“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’s chief executive Dave Lewis said in the statement, adding that the disposal removed “the need for the sustained investment required to enable the business to compete independently,” and allowed the group to focus on improving profitability in Central Europe and continuing to grow its businesses in South East Asia.
Charles Allen, an analyst at Bloomberg Intelligence, told Bloomberg by email that Tesco Kipa “did not have the funds to build scale”.
“It’s a competitive market and the market leader Bim is an extremely effective hard discounter,” the analyst pointed out.
Tesco separately announced that it had inked a deal to sell its loss-making chain Giraffe to Boparan Restaurants, for an undisclosed amount. Earlier this week, sources revealed to Sky News that the restaurants would be “all but given away”.
“As we stabilise the business in the UK, we continue to focus on where we can best serve the needs of our customers, while ensuring our business remains sustainable for the long-term,” Lewis said of the restaurant chain disposal.
The disposals are part of Tesco CEO’s plans to revive the grocer’s fortunes by shedding businesses and brands which either dilute the supermarket’s margins or act as a distraction from its principal revival mission.
As of 08:56 BST, Friday, 10 June, Tesco PLC share price is 155.57p.