Tesco has confirmed it has agreed to sell a “substantive part” of its US Fresh & Easy business to investment fund Yucaipa.
In an announcement late this afternoon, the UK retailer said Yucaipa, the investment vehicle of US billionaire Ron Burkle, will acquire over 150 Fresh & Easy stores and the unit’s distribution and production facilities in California. The outlets not included in the deal will be closed.
The statement followed a report by The Financial Times earlier in the day that a deal was imminent.
As part of the deal, Tesco will loan the new business around GBP80m, secured against the distribution and production sites in Riverside.
“The total cash outflow relating to the closure of these stores, other expenses and the loan is expected to be no more than GBP150m,” Tesco said. “Following the completion of the full sale and disposal process, there will be no ongoing financial exposure for Tesco.”
CEO Philip Clarke added: “The decision we are announcing today represents the best outcome for Tesco shareholders and Fresh & Easy’s stakeholders. It offers us an orderly and efficient exit from the US market, while protecting the jobs of more than 4,000 colleagues at Fresh & Easy.”
The sale will bring an end to Tesco’s six-year venture in the US, which ultimately proved unsuccessful, with the Fresh & Easy chain has yet to make a profit. In April, when Tesco confirmed it would quit the US after a four-month review of the unit, it booked a GBP1bn write-down on the business.
When Tesco announced in December it was reviewing the options for Fresh & Easy, Clarke pointed the finger at an “unprecedented crisis in the markets” on the states the retailer had targeted on the West Coast”.
The exit from the US comes as Tesco is in talks to combine its business in China with local retailer China Resources Enterprise. The two sides have signed an MoU and have already outlined plans for CRE to own 80% of the venture, with Tesco taking 20%.
Clarke’s tenure as CEO has also included an exit from Japan, with Tesco handing over control of its stores there to local retailer Aeon.
Analysts have said Tesco is using capital in a more disciplined manner, with the retailer diverting more resources to its UK business, where it is battling intense competition and trying to revitalise sales.
The results for its most recent quarter showed Tesco’s like-for-like sales fell in all but two of its markets year-on-year.