U.K.’s supermarket giant Tesco plc (GB:TSCO) is offloading a chunk of its retail banking business to British banking behemoth Barclays plc (GB:BARC) for £600 million. The deal includes Tesco’s credit card, loans, and savings accounts business, while the grocer will continue with its insurance, ATMs, travel money, and gift cards businesses. Meanwhile, Barclays also agreed to market the other Tesco-branded banking services that it is not buying. TSCO shares rose over 2% in early trade this morning on the news.
Here’s More About Tesco’s Sale
Tesco’s banking staff of about 2,800 employees will transfer to Barclays. The supermarket notified its customers that the transition would happen automatically. Per the deal, Barclays will continue to market some of the services under the Tesco brand, initially for ten years. These services include Tesco credit cards, unsecured personal loans, and deposits. Plus, Tesco will earn annual income from Barclays’ usage of its brand and Clubcard royalty programme in its customer engagements.
Tesco said that the majority of the sale proceeds will be returned to shareholders in the form of incremental share buybacks. The company will also receive £100 million once regulatory and other costs related to the deal are settled.
The strategic offloading of select banking operations will help Tesco focus only on those segments that require little investment. Also, supermarkets are cautious of stringent regulatory measures that govern banking businesses and prefer avoiding them. Through this deal, Tesco will be able to remove £7.7 billion of capital-intensive assets and £6.7 billion of financial liabilities from its balance sheet.
For Barclays, the deal will help to strengthen its retail banking business by adding a new distribution channel for unsecured lending and deposits.
Is Tesco a Buy, Hold, or Sell?
With seven Buys and one Sell rating, TSCO stock has a Strong Buy consensus rating on TipRanks. The Tesco plc share price forecast of 328.29p implies 15.9% upside potential from current levels.
