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Tesco (TSCO) has announced this morning it has agreed to sell its South Korean retail arm Homeplus to a consortium led by MBK Partners for £4.24bn.

Tesco has received a cash consideration of £4bn before tax and other transaction costs and the deal will result in a £4.23bn reduction in Tesco’s total indebtedness from £21.7bn to £17.5bn.

The transaction will complete in the fourth quarter subject to Tesco shareholder approval and regulatory approvals in South Korea.

Tesco CEO Dave Lewis commented: “This sale realises material value for shareholders and allows us to make significant progress on our strategic priority of protecting and strengthening our balance sheet.”

The consortium of buyers also includes Canada Pension Plan Investment Board, Public Sector Pension Investment Board and Temasek Holdings.

Homeplus delivered revenues of £5.4bn in the year to 28 Feburary 2015 and a trading profit of £292m.

Morning update

Associated British Foods (ABF) has issued a pre-close update this morning for its year to 12 September 2015, reaffirming that the impact of currencies and the performance of its sugar division will see an overall decline in annual profits.

ABF said in grocery, operating profit is expected to be ahead of last year with an increase in margin, and revenue will be lower, largely driven by commodity price deflation. Twinings Ovaltine grew market share in a number of regions and generated a strong profit increase, while sales volumes at Allied Bakeries also up over the financial year.

However, revenue and adjusted operating profit for AB Sugar, at both actual and constant currency, will again be substantially lower than the previous year driven by the further decline in European sugar prices.

Sales at Primark for the full year are expected to be 13% ahead of last year at constant currency mainly driven by an increase in selling space of 9%. Sales on a like for like basis are expected to be 1% ahead of last year.

As expected, Conviviality Retail issued an update on its bid for alcohol wholesaler Matthew Clarke on Friday, though it wasn’t particularly enlightening. Conviviality said: “Conviviality is pleased to report that discussions are progressing well”, and not much else. It promised a further update in “shortly”.

The FTSE has opened strongly this morning, up 1.1% to 6,107.7pts, bouncing back after a 2.4% fall on Friday ended another up-and-down week.

Most grocery stocks are up on the positive sentiment (including Unilever (ULVR) up 1.4% to 2,608p this morning), but Tesco and ABF are amongst the few fallers.

Tesco has edged down 0.6% to 184.7p on the news of its sale of Homeplus, while ABF has dropped 2.6% to 3,058p after its trading update indicating the currency picture and conditions for its sugar division haven’t improved.

The week in the City

There’s more City activity this week as we come out of the summer malaise.

First up tomorrow is half year results from meat packaging firm Hilton Food Group (HFG). Then on Thursday two of the UK’s big five supermarkets issue their half year results – with Morrisons (MRW) and Waitrose parent John Lewis Group both issuing their interims on the same day.

Also JD Wetherspoon (JDW) has its full-year results on Friday and in wider retail the week also brings trading updates from Home Retail Group (HOME), Next (NXT) and Sports Direct (SPD).

In non-company news, the monthly BRC sales monitor is out tomorrow, while Wednesday brings the BRC Shop Price index. Wednesday will also see the publication of the UK’s official balance of trade figures as well as industrial and manufacturing numbers. The minutes of the Bank of England’s latest interest rate decision will be published on Thursday.

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