LONDON — British supermarket Tesco said Tuesday that it has agreed to a sale of a “substantive part” of its Fresh & Easy retail business to YFE Holdings Inc., an affiliate of Ron Burkle’s Yucaipa Companies LLC.
The company, which in April revealed plans to exit the U.S. market after a severe contraction in its 2012-13 profits, said that Yucaipa would acquire more than 150 stores, as well as Fresh & Easy’s Riverside distribution and production facilities.
“The decision we are announcing today represents the best outcome for Tesco shareholders and Fresh & Easy’s stakeholders. It offers us an orderly and efficient exit from the U.S. market, while protecting the jobs of more than 4,000 colleagues at Fresh & Easy,” said Philip Clarke, Tesco’s chief executive officer.
Burkle has long invested in food retailing, particularly in California, and currently owns a majority stake in Pathmark. He also invests in fashion, having taken a stake in Sean John as well as American Apparel and Stephen Webster, the British jeweler.
More than 4,000 employees will transfer to the new business. As part of the deal, Tesco will loan the new business about 80 million pounds, or $125 million at current exchange, secured against the Riverside Campus, Calif., facility of Fresh & Easy.
The total cash outflow relating to the closure of the stores, other expenses and the loan is expected to be no more than 150 million pounds, or $235 million, Tesco said.
The statement added that the stores not included in the transaction would be closed over the coming weeks.
The sale to Yucaipa, subject to the necessary legal and regulatory approvals, is expected to be completed within three months.
The company said the sale is in line with Tesco’s focus on the “disciplined allocation of capital” to those markets with significant growth potential and the opportunity to deliver strong returns.
In April, Tesco revealed plans to exit the U.S. as it reported a 95.7 percent contraction in overall year-end profits to 120 million pounds, or $184 million at average exchange, including the cost of the U.S. wind-down.
Tesco had planned to shutter its 199 unprofitable Fresh & Easy shops at a cost of 1.2 billion pounds, or $1.88 billion.
In 2007, Tesco unveiled a new chain of grocery stores in the U.S. under the Fresh & Easy banner. The aim was to steal market share from competitors with small-format, neighborhood stores stocking fresh produce, but the idea failed to seduce U.S. consumers.
A series of headwinds also contributed to its failure, including the worldwide financial crisis and the slowdown in the U.S. economy; stiff competition from local chains, such as Trader Joe’s, and a misunderstanding of the nuances of doing business in the U.S. market, which has proven famously tricky for British retailers.