http://www.ft.com/cms/s/0/13c3d76c-2216-11dd-a50a-000077b07658.html
By Elizabeth Rigby in London and Song Jung-a in Seoul

Published: May 15 2008 03:00 | Last updated: May 15 2008 03:00

Tesco is breaking its decade-long pursuit of overseas organic growth, with a record cash purchase of a chain of hypermarkets in South Korea.

Britain’s biggest chain is acquiring 36 stores owned by E-Land Group in and round Seoul, where 11m potential Tesco customers live, for just under £1bn, including the assumption of existing debt.

This deal is the first time Tesco has spent anywhere near this kind of money on an international acquisition. Until now, it has preferred to grow from the ground up, through joint ventures with local partners and store-by-store growth.

But Phil Clarke, international director of Tesco, stressed that this did not herald a more radical era of expansion for the grocer.

He said: “We prefer organic growth, that is always our priority and will remain so, but these 36 stores give us two and a bit years of growth in one hit. In four and a half years in this job I have done two deals [the other one being an asset swap with Carrefour]. I don’t see an acceleration of deals at all”.

It does show that Tesco is determined to gain pole position in chosen markets. Korea is the retailer’s biggest market outside the UK, with £2.7bn of sales coming from 66 hypermarkets and 72 convenience stores. That turnover will be closer to £4bn once the deal goes through.

Tesco said the Korean deal would have a neutral impact on earnings in the second year of ownership and boost earnings beyond that. About half the price was the assumption of debt. Tesco will fund the deal from existing facilities.

Mr Clarke tried to buy the stores back in 2006, when Carrefour, the then-owners, decided to exit Korea, eventually selling the stores to E-Land for €1.5bn( $2.3bn).

JPMorgan said the acquistion gave Tesco a chance to close the gap on Shinsegae’s E-mart, which has sales of Won9,000bn (£??bn), against Tesco’s Won5,900bn. “Korea is a very interesting market long-term as the sector has become a two-horse race,” it said.

Elsewhere, Mr Clarke is still working on India, and hinted that Tesco could be warming to Russia, a hotspot for rivals Wal-Mart and Carrefour. “Russia is not never. You know how long we looked at America. But we have more than enough to keep us busy in the markets we are in,” he said. The shares closed 1.7 per cent down.