London: Britain's Tesco is to lend U.S. billionaire Ron Burkle's Yucaipa investment company 80 million pounds (USD 126 million) to take the loss-making Fresh & Easy stores off its hands, marking the end of a six-year attempt to crack the U.S. market.
Tesco, the world's third largest retailer, said on Tuesday Yucaipa will acquire over 150 of the California-based Fresh & Easy's stores as well as its Riverside distribution and production facilities. Also 4,000 Fresh & Easy employees will transfer to the new business.
The U.S. deal represents a further reduction in Tesco's international portfolio. In 2012 it pulled out of Japan and last month said it would fold its unprofitable Chinese operation into a state-run company as a minority partner.
Tesco said in April it would sell or close Fresh & Easy, booking restructuring and other one-off costs of 1 billion pounds.
The 80 million pounds loan to Yucaipa will be secured against the Riverside Campus facility.
Tesco said the costs of closing up to about 50 Fresh & Easy stores not part of the deal, other expenses and the loan will total no more than 150 million pounds.
It would have faced a much bigger bill had it had to close Fresh & Easy's 200 stores and lay off its entire workforce of 5,000.
Following the completion of the full sale and disposal process, expected within three months, there will be no continuing financial exposure for Tesco.
The sale is in line with the firm's declared new focus on the disciplined allocation of capital to those markets with significant growth potential and the opportunity to deliver strong returns.
"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 U.S. market," said Tesco Chief Executive Philip Clarke.
However, Tesco's overseas problems were not confined to the U.S. and China. In June the firm reported that nine of its 11 international businesses suffered a fall in underlying sales.
The firm also posted a drop in quarterly sales in its main British market, resuming a trend seen for most of the past three years and raising doubts about its 1 billion-pound turnaround plan.
Shares in Tesco, up 6 percent over the last year, closed Tuesday at 372 pence, valuing the business at about 29.7 billion pounds.
Yucaipa, founded in 1986 by Burkle, has completed mergers and acquisitions valued at more than USD 30 billion.
First Published: Wednesday, September 11, 2013, 10:43