Tesco in talks over struggling Turkish business

http://www.theguardian.com/business/2014/feb/24/tesco-talks-struggling-turkish-business

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Tesco has confirmed it is in talks with several companies over a possible restructuring of its struggling business in Turkey.

Britain's biggest retailer has been in Turkey since 2003 but has suffered poor trading from its 191 stores recently, with underlying sales at Tesco Kipa falling 10.7% in its second quarter to the end of August.

Last October, Tesco said its business in eastern Turkey could be restructured, but it would not exit the country.

Under pressure to turn around falling sales in its main domestic market, Tesco has done deals to sort out problem businesses in Japan, the US and China and analysts have speculated that Turkey could be next.

"Tesco is in the first stages of talks with various companies regarding various options," Tesco Kipa said in a statement to the Istanbul stock exchange on Monday.

It did not name any of the companies or any of the options. Tesco declined to elaborate.

Kipa's statement was prompted by a Financial Times report on Friday that Tesco was looking at combining its operations in Turkey with the country's biggest food retailer, Migros.

Migros is owned by the private equity firm BC Partners.

Analysts said they saw merit in a possible Turkish joint venture, speculating that a deal could be structured in a similar way to Tesco's move in China, where it took a smaller share of a bigger group.

Tesco's management are likely to be pressed on Turkey when they make a presentation to investors and analysts on Tuesday.

The company is 22 months into a turnaround plan for its UK business that has seen more than £1bn invested in store revamps, more staff, new product ranges and pricing initiatives.

Despite that, sales at British stores open over a year, excluding fuel and VAT sales tax, fell 2.4% in the six weeks to 4 January.

Some analysts say Tesco may use Tuesday's event to formally abandon its operating margin target of 5.2%, the highest in the industry.