The first page of the coursework must be the completed assignment feedback form which is made available to students within the module assignment folder and at the end of this handbook.
ADDITIONAL MATERIAL PROVIDED (on blackboard):
? Hong Kong Exchange Statutory Notice dated 9th August 2013 regarding the Memorandum of Understanding between Tesco PLC and China Resources Enterprise
? Joint Venture Agreement between Tesco PLC and China Resources Enterprise (TBC)
? Tesco PLC Annual Report and Financial Statements – May 2013
? China Resources Enterprise Annual General Meeting Record dated 24 May 2013
? Tesco PLC confirmation of agreed terms dated 2 October 2013
? Media Articles
Referencing: Students must utilise OSCOLA.
QUESTION
Preamble
Tesco PLC?s foray into overseas supermarket business has not been entirely fruitful. Indeed, despite having a certain level of presence in China for nearly nine years, Tesco has suffered losses to other supermarket chain operators.
The situation has been the same in the United States where Tesco?s overambitious venture came to an end on the 1st October 2013 when it filed Chapter 11bankruptcy proceedings in respect of its US chain Fresh & Easy. Tesco has agreed to sell the majority of its US stores to billionaire Ron Burkle, lending his Yucaipa investment vehicle £80m to take on about 150 stores.
A further 33 will close while another 20 remain under negotiation. The Chapter 11 bankruptcy process will help Tesco exit unwanted stores and protect it from any future liabilities, should it receive court approval in the next few months. Court documents reveal that Fresh & Easy’s sales reached $1.2bn (£740m) but the chain was losing $22m a month.
The sale will cost Tesco £150m, including the loan, payoffs for about 400 permanent staff and store closures, taking the total cost of its failed US adventure to nearly £2bn.
In China, Tesco recently reached a joint venture agreement with the State-owned China Resources Enterprise (“CRE”) whereby CRE will own 80% of the wholly new entity with Tesco outlets being phased out gradually over 2013-2014. CRE has 2,986 stores on the mainland and in Hong Kong, while Tesco only has 131 on the mainland alone. The venture could potentially create a business with £10bn in sales. It is hoped by Tesco that if this format of joint venture results in a better outcome for the company, it may use the same format for its ailing supermarket chain in Turkey. Tesco has maintained that the deal represented the “best outcome for Tesco shareholders”. Both parties are under advisement from the international law firms Freshfields Bruckhaus Deringer and Reed Smith Richards Butler.
In a more recent development, even before the ink has dried on the joint venture agreement, CRE announced on 22 August 2013 that it will work together with Tesco to make a take over bid for billionaire Li Ka-Shing?s Hong Kong supermarket chain ParknShop. CRE intends to fund its bid for ParknShop through raising debt capital and selling its non-core businesses. Li?s biggest company, Hutchison Whampoa Ltd has been considering selling the grocer, one of the two largest chains in Hong Kong?s $6.6 billion supermarket industry for some time and to date there are potentially 8 bidders.
REQUIRED TASK
In the light of Tesco PLC’s overall financial commitment in China and the recent joint venture agreement reached with the State-owned China Resources Enterprise, critically assess the risks and benefits for Tesco’s shareholders through examination of the actual terms of the agreement reached between the parties.