Barclays (BARC.L) is set to acquire most of Britain’s largest supermarket group Tesco‘s (TSCO.L) banking operations for approximately 600 million pounds ($757 million), the companies announced on Friday.
The move follows Sainsbury’s (SBRY.L), the UK’s second-largest supermarket, decision last month to wind down its banking business and offer financial products through third parties.
The acquisition precedes a significant strategy update from Barclays alongside its full-year results on Feb 20, amidst investor concerns over its stock’s lagging performance compared to competitors.
Barclays will absorb Tesco’s current banking operations encompassing credit cards, loans, and savings, incorporating 8.3 billion pounds of unsecured loans and approximately 6.7 billion pounds of deposits.
Tesco will retain its other banking activities, including insurance, ATMs, travel money, and gift cards.
Tesco’s shares rose by 1.4% in morning trading, while Barclays’ shares experienced a 0.3% decline. Approximately 2,800 Tesco employees are slated to transfer to Barclays.
In addition to the acquisition, Barclays and Tesco have forged a strategic partnership for an initial 10-year period.
This alliance will involve Barclays offering banking products and services under the Tesco brand, utilising Tesco’s widely popular Clubcard loyalty scheme. Tesco stands to receive annual fees of 50 million pounds.
The acquisition and partnership, pending regulatory approval, are anticipated to conclude in the latter half of 2024.
“This strategic collaboration with the UK’s largest retailer will facilitate the creation of new distribution channels for our unsecured lending and deposit businesses,” stated Barclays CEO C.S. Venkatakrishnan.
Earlier in November, Reuters had reported Barclays’ exploration of a potential acquisition of Tesco’s banking operations.
Tesco disclosed that the majority of the proceeds, alongside a previously declared special dividend of 250 million pounds from Tesco Bank in August 2023, would be returned to shareholders through an additional share buyback.
The supermarket chain noted that the deal would bolster its balance sheet by divesting capital-intensive assets while retaining those with lighter capital requirements.
Tesco anticipates reaping around 100 million pounds after settling its regulatory capital.
It projected an annual adjusted operating profit of 80 million pounds to 100 million pounds from the partnership and retained activities, surpassing half of Tesco Bank’s expected profits for the current year.
Furthermore, the deal is expected to have a “mildly accretive” impact on earnings per share.
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