Inside Track: Tesco executives ponder a spin-off for Asian business

Mark Kleinman
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IT’S hardly on the scale of Royal Bank of Scotland, but Tesco’s retrenchment from the empire-building of Sir Terry Leahy means it will soon struggle to describe itself using the adjective “global”.

Fresh from its exit from Japan, a retreat into a joint venture in China and this week’s announcement of the part-sale, part-closure of Fresh & Easy in the US, the supermarket group’s international reach suddenly looks rather more threadbare.

And word reaches me that another idea has been kicked around the company’s Cheshunt headquarters in recent weeks.

Under the plan floated by some managers, Tesco would parcel up its remaining operations in Asia – comprising its stores in Malaysia, Thailand, South Korea and ultimately India – and spin them off into a separately-listed company on one of the continent’s stock exchanges.

Analysts argue that Tesco’s faster-growing markets assets could be pooled into a separate company that would attract a premium rating and benefit the London-listed parent.

The proposal has not, however, apparently garnered much support from Philip Clarke, Tesco’s chief executive, and is not under serious consideration by the group’s board. The performance of its domestic business might dictate whether it is revived.

It is eight years since “The Spank From Hank” entered the phrasebook of every self-respecting Wall Street employee.

Furious that his London-based bankers were competing against key clients by bidding against them for control of companies such as BAA, the airport operator, and the pub company Mitchells & Butlers, the then chairman of Goldman Sachs issued a strategically-leaked dressing-down.

Much has changed in the world’s major financial centres since then, although not, it seems, Goldman's ability to manage perceived conflicts that others can’t – or won’t.

Take the imminent acquisition of a stake in Hastings, the leading insurance group, by one of the firm’s private equity funds.

Goldman outbid buyout firms including Advent International to win exclusivity on the deal, just days after pocketing a handsome fee from Advent for advising it on and financing the takeover of Domestic & General, the appliances insurer, by CVC Capital Partners.

Sailing close to the wind? Many of those who question Goldman’s surefootedness in juggling the interests of clients against its own might suspect so.

The big difference this time around, I’m assured, is that the bank kept Advent informed throughout about its pursuit of the Hastings stake. Indeed, sources at the private equity group insist its relationship with Goldman remains strong.

That spank from Hank clearly left an indelible mark.

When is a lock-up not a lock-up? Whenever it suits the investment bankers involved to waive it, to judge by recent evidence.

To say that investors were left scratching their heads back in May by Lloyds Banking Group’s sale of a roughly 15 per cent stake in St James’s Place, the wealth manager, would be to downplay the anger felt by City institutions.

That trade followed the placing of a slightly smaller chunk of St James’s Place stock just weeks earlier, and which had been accompanied by a pledge from Lloyds to maintain its remaining 37 per cent stake for at least a year.

The second deal triggered a furious response from the Association of British Insurers, which argued – understandably – that its members had been misled about Lloyds’ intentions.

A lock-up agreement should be exactly that, it said.

Now, a deal to police such agreements – that would be blessed by the regulator – is said to be close, except that “one or two” banks are digging their heels in.

The recalcitrants should set aside self-interest and think again.

Mark Kleinman is the City editor at Sky News. Follow on Twitter: @MarkKleinmanSky