News > Capital Markets

MBK set to out-bid rivals for Tesco Homeplus

By NexChange
Capital Markets

The battle for Tesco’s loss-making Korean discount retail stores is reaching its climax. Private equity firm MBK is set to ink the $6 billion deal, seeing off rivals KKR, Affinity Equity Partners and Carlyle to complete the biggest-ever private equity buy-out in Korea.

Tesco Homeplus insiders leaked the word that the MBK consortium, which includes the state-run National Pension Service, Singapore’s Temasek and the Canadian Pension Plan, is the preferred bidder, according to FinanceAsia.

Tesco’s exit follows a disastrous year for its domestic supermarket operations in the UK where it has built a mountainous £21.7 billion ($33.2 billion) of debt and has been forced to make £7 billion of asset writedowns.

However, it would be a landmark purchase for MBK after a series of hit-and-miss investments.

The leading Korean firm, set up by former-Carlyle manager Michael Byungju Kim, won the auction for ING Life Insurance Korea in 2013 and in the previous decade for gained controlling stakes in Taiwan’s China Network Systems and Japan’s USJ. But it lost a fight with KKR and Affinity for Oriental Brewery in 2009 and it has struggled to make much of its holdings in clothing firm Nepa and cable TV company C&M.

Homeplus is Korea’s second biggest discount store chain after Shinsegae’s E-Mart with more than 900 outlets. But MBK faces a harsh environment to make this investment pay off.

The country’s sluggish economy and government curbs on weekend opening hours to protect mom-and-pop businesses means it will struggle both to reverse the company’s operating losses and also pay back the chunky loans it has secured to make the acquisition

Even more worrying is MBK’s exit strategy. Losses last year by Homeplus tend to confirm that the country is a rather unhappy place for foreign retailers. Walmart and Carrefour pulled out after years of dismal performance.

Subscribe to our Newsletter

Be one of the first to experience the future of financial services