A turnaround is rarely straightforward, and such is the case for Tesco right now. It’s flogging non-core assets in a bid to patch up its ragged balance sheet, but that is looking like an increasingly uphill task as its data unit Dunnhumby may be worth a darn sight less than previously thought.
The business behind Tesco’s Clubcard was put up for sale earlier this year with a mooted pricetag of £2bn. Then in June Sky News reported that had halved to around £1bn. Now bidders are reportedly considering offering £700m – or even less.
Dunnhumby has had to renegotiate a contract with US retailer Kroger, which will reportedly slash its annual profits from £110m to £60m or less, according to the FT. That will make any acquisition less easy to finance for bidders, who are said to include a WPP-private equity tie-up and four other private equity firms.
The UK’s biggest retailer desperately needs to shore up its balance sheet, as it tries to stem the flow of customers to Aldi and Lidl, after the dramatic revelation profits had been overstated by £263m profits and a record £6.4bn annual loss.
Credit ratings agency Moody’s has estimated Tesco needs £5bn to plug the leaks. Its South Korean business is also up for sale and should fetch around £4bn. But that still leaves it needing a good price for Dunnhumby – unless chief exec Dave Lewis tries to sell Tesco Bank, for example.
Tesco's tumbling shares. Source: Yahoo Finance
But there is the danger of getting rid of decent businesses that can help support the ailing supermarket in years to come. The dreaded last resort is a rights issue, which will deplete the supermarket’s already-ailing shares, which fell another 2.2% this morning, having tumbled 44% in the last two years. No one ever said Lewis’ job would be easy.