Tesco Shares Rose 2.53% on Sale of Banking Business to Barclays

The Tesco PLC (LON: TSCO) share price rose 2.53% after announcing that it had entered into a significant strategic alliance with Barclays, a leading bank in the UK. Set for an initial duration of 10 years, the exclusive collaboration leverages Tesco's unparalleled brand presence, extensive omnichannel footprint, and dedication to customer satisfaction. 

The alliance enables the introduction of Tesco-branded financial products and services, capitalising on the strength of the Tesco Clubcard—Britain's most extensive loyalty scheme—and exploring further avenues to add value for both Tesco and Barclays customers. 

According to the partnership agreement, Tesco will earn annual revenues for branding rights, customer expansion through Tesco's channels, and Barclays' integration within the Tesco Clubcard program.

Tesco will divest its existing credit cards, loans, and savings operations to Barclays. This move offloads £7.7 billion in asset-intensive holdings and £6.7 billion in financial obligations from Tesco's ledger. In exchange, Tesco anticipates receiving approximately £600 million, plus an additional net cash of around £100 million after settling specific regulatory capital requirements and transaction expenses. 

With a special dividend of £250 million issued by Tesco Bank in August 2023, the anticipated cash inflow to Tesco is estimated at £1 billion. This sum will be distributed to shareholders through an expanded share buyback program.

Tesco Bank will maintain its other operations, such as insurance, ATMs, travel money, and gift cards, which are low in capital requirement, profitable, and closely tied to Tesco's leading retail business.

The estimated annual adjusted operating profit from both the new partnership and the continuing operations is expected to fall between approximately £80 million and £100 million, constituting over half of the projected profits from Tesco Bank for the current year.

Considering the incremental share buyback, the net effect of selling the banking operations and establishing the partnership should slightly enhance earnings per share.

Approximately 2,800 Tesco Bank employees involved in banking products, including the leadership team, will move to Barclays, ensuring exceptional customer service. Barclays is committed to working closely with Tesco to facilitate a smooth transition for these team members.

Tesco share price.

The Tesco share price rose 2.53% to trade at 287.35p from Thursday’s closing price of 280.25p.