Barclays Acquires Tesco Banking Arm for £600 Million

In a notable move within the UK financial sector, Barclays, a leading British bank, has confirmed the acquisition of the retail banking arm of Tesco for approximately £600 million, which is equivalent to $757 million. This strategic purchase enables Tesco, primarily a grocery chain, to concentrate on its primary business of food retail and provides an avenue to return capital to its shareholders.

Details of the Acquisition

Through this acquisition, Barclays UK will inherit a variety of Tesco Bank's services, including the issuance of credit cards, the provision of unsecured personal loans, and the handling of customer deposits. The transfer also encompasses Tesco Bank's operating infrastructure. Barclays will absorb approximately £8.3 billion in unsecured lending balances and around £6.7 billion in customer deposits held by Tesco Bank.

Analysts at Shore Capital assess that this acquisition will positively contribute to the scale and profitability of Barclays' credit card business, noting the decline in balances post-pandemic in the UK.

Impact on Barclays and Tesco

The integration of this new business within Barclays is anticipated to involve around 2,800 employees. Barclays plans to fund the acquisition with available internal resources. On Tesco's end, it will retain its insurance, ATM, travel money, and gift card operations, which continue to be profitable with minimal capital requirements.

Tesco's CEO Ken Murphy points out that the deal significantly reduces their financial liabilities, leading to a fortified balance sheet that facilitates further growth in Tesco's core retail sector. The downsizing of assets and liabilities on Tesco's balance sheet is reported at £7.7 billion and £6.7 billion respectively.

As part of the acquisition, a 10-year partnership was negotiated, allowing Barclays to offer Tesco-branded financial products. Tesco, in turn, will earn annual income from the brand and channel use.

Financial Details and Shareholder Benefits

The conclusion of this transaction will result in Tesco receiving about £1 billion in cash. This includes the sum after accounting for transaction expenses, the settlement of certain regulatory capital amounts, and an additional £250 million special dividend paid by Tesco Bank in August. This windfall is expected to be channeled back to the shareholders via an extra share buyback program.

Tesco anticipates retaining a significant portion of this year's Tesco Bank earnings through the partnership and the retained services, estimating an adjusted operational profit between £80 million and £100 million in comparison to £85 million recorded in the previous year.

The consolidation is scheduled for completion in the latter half of 2024, pending regulatory approval. Stock prices reflected the announcement with Barclays shares dipping 0.9% to 141.82 pence, while Tesco shares increased by 1.2% during the trading session.

Barclays, Tesco, Acquisition