Tesco expands South Korean presence with £1bn acquisition

by Darren Davidson, Brand Republic 15-May-08, 09:15

LONDON - Tesco has bought 36 discount stores from South Korea's E-Land for $1.9bn (£977m), marking its biggest single acquisition and a break with its decade-long pursuit of overseas organic growth.

The move is part of a plan to further expand in fast-growing international markets to offset slowing growth at home.

South Korea is already Tesco's second most profitable market after Britain, with £2.7bn of sales coming from 66 hypermarkets and 72 convenience stores. The new deal will increase its turnover to almost £4bn.

Tesco is the second-largest discount store retailer in South Korea, but the acquisition will allow the supermarket giant to challenge the top-ranked E-Mart chain, run by Shinsegae.

E-Mart has 111 stores, which Tesco can now almost match by adding its acquired stores to the 66 outlets in its discount store chain, Home Plus.

Andrew Higginson, finance and strategy director at Tesco, said: "We've been pursuing this for two years, it is a terrific strategic opportunity for us to be equal number one in the market.

"There are very few deals of this size available. We are always in the market, in markets where we are successful, we are always looking for new stores."

However, Phil Clarke, international director of Tesco, said the deal did not signal a more radical era of expansion for the company.

He said: "We prefer organic growth, that is always our priority and will remain so, but these 36 stores give us two and a bit years of growth in one hit."

Elsewhere, Tesco is said to be eyeing up further expansion in India, and possibly Russia -- a hotspot for rivals Wal-Mart and Carrefour.

Tesco dominates British retailing with some 2,000 stores and more than one-third of the grocery market share. Tesco shares dipped 0.6% to 427p in a flat London market.

Tesco's move in South Korea follows controversy over its expansion in Thailand.

The company's Thai subsidiary Tesco Lotus is suing a Thai journalist and a Thai businessman Jit Siratranont for criminal libel, after they criticised its behaviour. The pair face prison if convicted; Tesco says it hopes to receive an apology.