Barclays, one of the largest banks in the United Kingdom, has made a significant move in the banking industry by acquiring Tesco’s retail banking division for a whopping £600 million. This acquisition marks a strategic decision for both parties involved and is expected to have a positive impact on their future endeavors.
Tesco, the well-known U.K. supermarket chain, announced on Friday that it would be selling its retail banking business to Barclays. The deal involves an initial payment of £600 million, followed by an additional £100 million after certain regulatory capital amounts are settled and transaction costs are taken care of. With this move, Tesco aims to utilize the majority of a combined £1 billion, including a special dividend from Tesco Bank, for a share buyback.
However, while selling its retail banking division, Tesco will retain its insurance, ATMs, travel money, and gift cards. These aspects contribute to an estimated operating profit of around £80 million to £100 million on a proforma basis. The decision to retain these services reflects Tesco’s focus on maintaining a diverse range of offerings for its customers.
On the other hand, Barclays is acquiring credit cards, unsecured personal loans, deposits, and the operating infrastructure from Tesco’s banking division. This includes a significant £8.3 billion of unsecured lending balances that align with Barclays’ existing U.K. portfolios in terms of credit quality. In the 12 months leading up to February 2023, the acquired business generated an adjusted operating profit of approximately £85 million.
In addition to the acquisition, Barclays will enter into an exclusive strategic partnership with Tesco for an initial period of 10 years. This partnership will involve marketing and distributing credit cards, unsecured personal loans, and deposits under the Tesco brand. As part of this agreement, Barclays will pay £50 million per year to Tesco. This collaboration showcases the confidence that Barclays has in Tesco’s brand and its potential to attract customers in the banking sector.
Looking at the financial performance of both companies, Tesco’s shares have experienced a 3% drop this year, while Barclays’ shares have declined by 7%. This acquisition presents an opportunity for both companies to reinvigorate their performance and strengthen their positions in the market.
Overall, the acquisition of Tesco’s retail banking division by Barclays is a significant move that will shape the future of both companies. With Tesco focusing on its core supermarket operations and Barclays expanding its banking portfolio, this strategic partnership has the potential to create a winning combination. The exclusive agreement between the two entities will not only benefit their bottom lines but also provide customers with enhanced financial services under the trusted Tesco brand. As both companies navigate the ever-evolving banking industry, it will be interesting to see how this partnership unfolds in the years to come.
