Tesco ordered to return $160 mn to MBK over Homeplus deal

Tesco Plc, the UK's largest retailer, was recently ordered by an international arbitration court to return £119 million ($163 million) to MBK Partners, in relation to its sale of South Korean supermarket chain Homeplus to the private equity firm.

In 2015, MBK acquired 100% of Homeplus for 7.68 trillion won ($6.48 billion) from Tesco, in its largest-ever acquisition. Since then, both sides have been embroiled in legal wrangling over the deal's price tag, according to investment banking sources on Oct. 14.

The ruling by the London Court of International Arbitration ended their six-year dispute over the buyout deal. The money from Tesco will belong to Homeplus.

MBK claimed Tesco had overstated the value of Homeplus by underestimating its debt, which was based on International Financial Reporting Standards.

The North Asia-focused PE firm argued that Homeplus' valuation should have been based on South Korean accounting standards, given that it had adopted K-GAAP (Korea Generally Accepted Accounting Principles) for annual reports until 2015.  

Finding fault with its valuation after post-acquisition due diligence, MBK  brought the case to the London Court of International Arbitration. 

The price tag of 7.68 trillion won was divided into 5.8 trillion won for a 100% stake in Homeplus and 1.88 trillion won in debt held by the Korean retailer. The bulk of the debt, or 1.4 trillion won, was a bond sold to Tesco's financial services unit Cheshunt Overseas LLP. The bond was repaid with interest after its acquisition by MBK.

MBK has transformed the offline-focused business of Homeplus, then South Korea's No. 2 supermarket franchise, to expand its e-commerce services, using all its stores as logistics centers for the online business as well.