Orion is out in bidding for Tesco’s Korea operations

Private-equity firms such as MBK Partners and the Carlyle Group are among the short-listed bidders for Homeplus, a local discount retailer owned by the U.K. grocery chain Tesco, according to people with knowledge of the matter.

Affinity Equity Partners and Goldman Sachs’ private equity arm have also been short-listed, while the local snack maker Orion, which had submitted a bid, failed to move to the next round after a bid at the lower end of the bidders’ range. Orion’s bid was said to have been between 4 and 5 trillion won ($3.6 billion to $4.4 billion).

Orion shares jumped 5.7 percent on Thursday after the news of its withdrawal. “Homeplus was probably too big of a prize for Orion to handle. Its failure has been expected,” a brokerage analyst said.

Hyundai Department Store, which had earlier shown interest in bidding, decided not to, the retail company said. The chain is currently focused on getting a license for a duty-free business in Seoul.

The Homeplus sale is expected to fetch around $6 billion for the troubled U.K. grocery chain Tesco, which is dealing globally with massive losses and huge outstanding debts. The sale of its Korean operations is part of its efforts to secure cash as it tries to stay afloat.

Tesco entered the Korean retail market jointly with Samsung C&T in 1999, initially controlling 81 percent stake in Homeplus but gradually buying out Samsung’s stake.

Homeplus operates 107 hypermarkets and 828 express stores across Korea, and is the third-largest discount retailer, after E-Mart and Lotte Mart, according to regulatory filings.

Korea’s discount retailing market is estimated to be worth 34.9 trillion won as of the third quarter of 2014, down from 45.1 trillion won a year earlier. The sector has been hurt by an economic slump and government regulations that restrict operations during weekends to protect mom-and-pop stores.

Homeplus saw a net loss of 299 billion won last year. Homeplus Tesco reported a net loss of 48.8 billion won and Homeplus Bakery contributed a net loss of 6.7 billion won.