Bidders Abandon Auction Of Tesco Data Unit

A string of private equity firms have abandoned offers for Tesco's data arm after the retailer struck a deal with the unit that left prospective buyers concerned about financing.

Sky News understands that the interest of buyout groups including Apax Partners, CVC Capital Partners, Clayton Dubilier & Rice and TPG is either waning or that they are no longer in the frame to acquire Dunnhumby, which is now valued at well under £1bn - less than half original estimates.

General Atlantic Partners, which had been involved in a joint bid with WPP Group, the marketing services giant, is also said by people close to Tesco to have decided against pursuing its interest.

It is unclear whether Silver Lake Partners, a technology-focused investment firm, remains in the process, although it is said to have attached a number of conditions to any prospective offer.

News that the Dunnhumby auction has hit renewed turbulence comes the day after Tesco announced the sale of Homeplus , its business in South Korea, for well over £4bn.

The move will enable the UK's biggest retailer to slash its debt-pile and was hailed by Dave Lewis, its chief executive, as enabling it to make "significant progress on our strategic priority of protecting and strengthening our balance sheet".

Analysts have speculated that Tesco may decide to abort the Dunnhumby auction in the wake of the Korean sale.

Tesco recently struck a five-year agreement with the unit which manages its Clubcard loyalty scheme.

That arrangement will expire in 2020 meaning that a new owner faces having to secure another deal with the company which currently accounts for more than half of Dunnhumby's revenues.

A number of private equity bidders withdrew on the basis of that deal, having struggled to secure acceptable borrowing terms from banks.

The buyout firms are said to have asked Tesco to consider offering a longer contract with Dunnhumby in an effort to make their bids viable.

Tesco took control of Dunnhumby in the early 2000s after it played a significant role in the grocer's emergence as the UK's dominant retailer.

Tesco, which is recovering from the most tumultuous year in its history, was initially expected to reap a £2bn windfall from the sale of the data arm.

But Sky News revealed earlier this year that the restructuring of the data analytics unit's relationship with Kroger, a US retailer, meant that the eventual price may be closer to one-third of that sum.

Tesco has also made what one bidder described as "aggressive" forecasts for Dunnhumby, suggesting that it could grow revenue to nearly £1bn and profit to almost £200m on the back of new client contracts by 2020.

The retailer is rebuilding in the wake of a £6.4bn annual loss for last year - one of the biggest in UK corporate history - and is the subject of inquiries by the Serious Fraud Office, Groceries Code Adjudicator and Financial Reporting Council.

Tesco and the private equity firms were either unavailable or declined to comment.