CPPIB and MBK buy out Tesco’s Homeplus for $6bn

Canada Pension Plan Investment Board (CPPIB) has joined a consortium led by South Korean private equity firm MBK Partners to acquire Tesco’s interest in Korean retailer Homeplus Group for $6 billion.

CPPIB invested $534 million in the deal as part of a transaction club that included Montreal’s Public Sector Pension Investment Board(PSPIB) and Singapore’s Temasek Holdings. Its purchase will give CPPIB a stake of 21.5 percent in the operator of 1,075 retail stores.

Officials from CPPIB and PSPIB did not immediately return calls for comment.

Pierre Lavallée, senior managing director and global head of investment partnerships at CPPIB, said: “Homeplus is an attractive investment for CPPIB as it provides us with access to one of the largest retail markets in Asia through a well-established business with a strong cashflow profile.”

For Tesco, the divestment, which represents one of the largest M&A deals in Asia in 2015, “allows us to make significant progress on our strategic priority of protecting and strengthening our balance sheet”, said Dave Lewis, Tesco’s chief executive.

Tesco is saddled with £21.7 billion ($33.37 billion; €29.83 billion) in debt, which will be reduced to around £17.5 billion from the divestment. Tesco will receive net proceeds of £3.35 billion from the sale of Homeplus, which generated £5.4 billion in turnover and EBITDA of £466 millionin the 53 weeks to 28 February.

The deal by MBK, which manages $7.3 billion in assets, trumped a rival offer from a KKR consortium, according to reports.

CPPIB, which ranked first in Private Equity International’s annual LP 50 ranking this year with more than $28 billion committed to private equity, has experience of South Korea and consortium deals.It made its first investment in the country seven years ago and joined UK’s Permira to acquire Informatica, the software development company, in April.

HSBC and Barclays served as financial advisers to Tesco.