It was reported that British retailer Tesco asked for more than 8 trillion won (US$7.26 billion) for its HomePlus in Korea. According to investment banking sources on June 18, Tesco, which owns the 100-percent stake in Korea's No. 2 discount retailer, and its underwriter HSBC Securities said this in the information memorandum sent out to potential bidders.
The price tag was calculated by imputing the lease rate of return at 7.5 percent a year multiplied by 107 discount stores and 828 HomePlus express stores across the country for 11 years. The amount of lease deposits that the British retailer expects can recoup was 500 billion won.
Accordingly, the bidders see that 8.5 trillion won, the sum of 8 trillion won in real estate value and 500 billion won in lease deposits, would be the asking price. An investment banker commented, "It is equivalent to saying if you offer below 8.5 trillion won in the preliminary bidding, you won't make the shortlist."
If it materializes as expected, the HomePlus deal would be the biggest M&A deal ever in Korea's history, overtaking that of LG Card by Shinhan Financial Group in 2006 when the banking group paid 7,246.4 billion won for the credit card unit. Tesco mandated all bidders to take part in the preliminary bidding individually without forming consortiums.
Given the hefty price tag, few bidders are able to pull off a deal of this size. The reason Tesco demanded the bidders to participate independently has to do with the fact that it wants to raise the price as much as possible by picking and choosing only a small number of bidders with the highest prices and requiring them to form consortiums.