Government regulators greenlight CP’s acquisition of Tesco operations in Thailand

The Office of Trade Competition Commission (OTCC) said on Friday that it approved the Charoen Pokphand Group (CP)’s acquisition of Tesco stores in Thailand with some conditions.

CPALL’s share price had been trading at a four-year low at 59 baht per share.

The deal worth around $10.6 billion was given a green light as it did not constitute a monopoly, the regulators said in its ruling.

“The deal may significantly lower competition but won’t create major damage to the economy or consumers’ benefits,” the OTCC said.

According to the statement, CP Group will be barred from other modern-trade retailing mergers for three years, excluding e-commerce.

Other conditions are:

  • CP and Ek-Chai Distribution System, its main retail business units, must increase the proportion of product sales from small to medium-sized enterprises at 7-Eleven stores and all Tesco outlets by at least 10 per cent year-on-year for five years.
  • The merged entity is barred from sharing any trade secrets with manufacturers or distributors of goods or raw materials.
  • Ek-Chai must maintain contract terms and agreements with existing manufacturers and suppliers of products or raw materials for two years.
  • CP and Ek-Chai must report business performance on a quarterly basis, or in a period specified by the commission for three years.

CP already has 12,000 of 7-Eleven stores under its operations, as well as the 134 branches of Siam Makro chains in Thailand. The retail giant will acquire more than 2,000 Tesco retailers across the country.

Stock movement

CPALL share price had been rising for the last five days as rumours swirled that the deal would be approved. It closed at 59.75 baht per share as Friday’s trade ended, up 0.42 per cent, with a transaction value of 2,104.18 million baht.

Analysts from Nomura Securities said it had neutral sentiment toward the CP-Tesco deal as CP will have to arrange to buy Tesco’s assets which will double the net debt to equity ratio at the end of 2020, up from 1.17x in the second quarter.

For those investors who can accept the risks, Nomura recommends gradually buying stocks since it is believed that CPALL has alternative financing options such as issuing a perpetual bond or reducing its MAKRO stake.

Nomura rates ‘Trading Buy’ on CPALL with a target price for 2021 at 75 baht per share.

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