Tesco windfall from Dunnhumby sale may be halved, reports say

2nd Jun 2015 08:21

Potential private equity buyers for Tesco's Dunnhumby data unit have cut their valuation for the business in half, according to City talk.Tesco's April renegotiating of Dunnhumby's deal with US retailer Kroger, which was intended to make the business more attractive to buyers, has led to bidders cutting their valuations of the company from £2bn to around £1bn, according to Sky News.Although Tesco is now reportedly prepared to sell the entire business, insiders have let slip that the renegotiation of Dunnhumby's relationship with Kroger to permit the data business to work with other US groups, meant that the profitability of the business is now substantially lower, Sky said.Some sources said that profits before tax had halved to roughly £70m as a result of the new contract, while others indicated that the fall was not as quite as bad.Tesco has been looking to sell some of its businesses as part of the streamlining and de-leveraging strategy of new chief executive Dave Lewis.In late April Dunnhumby, which is wholly owned by Tesco and crunches the data from the supermarket group's Clubcard loyalty card scheme, and Kroger agreed to replace their existing exclusive joint venture, which has been in place since 2003, with a more flexible long-term license and service agreements that will enable the UK business to work with other retailers, fast-moving consumer goods players and media partners in North America.