Tesco pays to dispose of its Japanese arm

SUPERMARKET giant Tesco yesterday ended a nine-year attempt to crack Japan’s tough retail market by effectively paying Aeon, the country’s second-biggest general retailer, to take its loss-making business off its hands.

The deal, which will allow Tesco to focus on fixing its main British business after a shock profit warning in January, will re-heat speculation over the group’s long-term commitment to its much larger loss-making Fresh & Easy business in the United States.

Many foreign retailers, including Carrefour and Boots, have abandoned operations in Japan, hampered by fickle consumer tastes, a super-competitive landscape and prolonged, profit-sapping deflation.

Tesco, which trails Carrefour and US industry leader Wal-Mart by annual sales, put the Japanese business up for sale last August, hiring Goldman Sachs to find a buyer.

Japan is the smallest of Tesco’s 13 international businesses, consisting of 117 stores in greater Tokyo.

The deal with Aeon will see Tesco exit Japan in two stages. It will first sell 50 per cent of its shares in Tesco Japan for a nominal sum.

Tesco will then invest £40m as a joint venture partner to finance restructuring, after which it will have no further financial exposure.

“Given ongoing trading losses of about £30m after approaching a decade in the market, Tesco appears to our minds to have taken the correct approach with funded withdrawal,” said Shore Capital analyst Clive Black.