MBK Partners signed a contract on Sept. 7 to acquire 100 percent of Tesco’s Homeplus shares for 7.16 trillion won (US$5.94 billion). Immediately after the signing, the private equity fund (PEF) announced that it would invest 1 trillion won (US$829 million) in Homeplus for the following two years, and promised not to fire anyone. In addition, Tesco’s dividend plan worth 1.3 trillion won (US$1.1 billion) was withdrawn, at least temporarily.
A number of global investors participated in MBK Partners’ consortium for the acquisition of Homeplus, including the Canada Pension Plan Investment Board (CPPIB), the Public Sector Pension Investment Board of Canada, and the Singapore-based Temasek Holdings. They are expected to form a special-purpose company with MBK for equipment investment in Homeplus.
MBK is likely to divide the company before disposal. Homeplus is currently running 107 super supermarkets, 828 supermarkets, and 220 convenience stores in Korea. Few domestic distribution businesses are capable of them on. The Fair Trade Commission is unlikely to approve of such a deal, and it is more profitable for MBK to sell it after splitting it into multiple businesses and raising their respective values.
In the meantime, the trade union of Homeplus announced that it would go on a strike. “Tesco took a profit of almost 5 trillion won by selling the company to a speculative fund so as to raise the sale price,” a union representative said in a statement immediately after MBK’s announcement, adding, “We will go on a strike unless MBK Partners informs us of details as to the continuation of employment, collective bargaining rights, etc.”
It is said that Tesco has taken 91.8 billion won (US$76.2 million) in royalties from Homeplus during the last five years after the establishment of its joint venture with Samsung C&T back in April 1999. It is estimated to have already made substantial profits with the dividends, corporate bond interest, and the like as well. Its gains are predicted to reach several trillion won when the proceeds from the sale are taken into account.