BANGKOK -- Thailand's largest conglomerate Charoen Pokphand Group has reached an agreement with British grocery chain Tesco to purchase its businesses in the kingdom and Malaysia for $10.57 billion, a deal set to become one of Asia's biggest this year.
The deal values 86.9% of Tesco Lotus, the Thai business, at $9.9 billion and 100% of Tesco Malaysia at $700 million. Tesco began operating in Thailand in 1998 and ran 1,967 stores, serving over 13 million customers each week as of August 2019. Its Malaysian business, which began in 2002, operated a network of 68 stores.
CP Group's convenience store arm CP All, as well as other subsidiaries such as CP Retail Development, Charoen Pokphand Holdings, CP Merchandising are involved in the investment. The deal is subject to the approval of competition authorities, which is likely to make a decision by the third quarter of 2020, according to Tesco.
For CP Group, the Tesco chain is a missing piece that originally belonged to the conglomerate. CP formed the Lotus Supercenter chain in 1994. The chain accepted an investment from Tesco to turn it into Tesco Lotus in 1998 during the Asian financial crisis. CP ended up selling its shares in Tesco Lotus in 2003.
The conglomerate evolved from livestock farming and food processing under the leadership of Thailand's richest man Dhanin Chearavanont, now the group's senior chairman. It entered the retail business, when it opened the first 7-Eleven outlet in 1989 through CP All. Since then, the company has been the sole operator of 7-Eleven convenience stores in Thailand. CP Group and CP All co-own cash and carry chain Siam Makro.
Under its food-processing arm Charoen Pokphand Foods, it runs a chain called CP Fresh Mart, but its focus is on products relating to cooking.
Other Thai conglomerates, such as retail-centered Central Group and liquor-focused TCC Group, also have their own grocery chain channels. Central operates supermarkets under its Tops brand. French retail company Casino Group sold its majority stake in Big C hypermarket's Thai business in 2016, while its Vietnamese business went to Central.
These two conglomerates competed with CP on the Tesco deal. Tesco announced its interest to sell its businesses in Thailand and Malaysia in December.
However, CP's intention to take back the business was backed unanimously by Tesco's board. "I am confident that the agreement we have reached with CP Group presents an exciting opportunity for their continued success," Tesco Chief Executive Dave Lewis said.
According to Forbes Thailand's 50 Richest list, CP's Chearavanont brothers were ranked the richest with a combined net worth of $29.5 billion. Central's Chirathivat family led by the incumbent group CEO came second with $21 billion. TCC founder Charoen Sirivadhanabhakdi was placed fourth with a net worth of $16.2 billion.
Against a global stock mauling, CP All's share price fell by 10% on Monday. CP Foods slid by 19%. Both falls were sharper than the benchmark SET index, which was down around 8% due a tumble in oil prices and the coronavirus outbreak.
Analysts said the deal may be overvalued. Tesco said the agreed price implied an EV/EBITDA multiple of 12.5 times.