Tesco (LSE:TSCO) has agreed to sell its businesses in the Czech Republic and Slovakia to Ahold Delhaize for a total enterprise value of €1.7bn (£1.5bn), on a cash and debt free basis.
The deal, disclosed by the UK's largest grocery chain, is expected to generate net cash proceeds of €1.2bn (£1bn) before tax and other transaction costs, and Tesco said it expects to return the majority of those proceeds to shareholders through an incremental share buyback once the sale completes.
The move follows sell-side speculation flagged earlier this year that Tesco was weighing a disposal of its Central Europe business to simplify the group and redeploy capital into its core UK operations; Deutsche Bank had identified such a move as potentially margin-accretive given profitability pressures in parts of the region.
Completion is subject to antitrust and other regulatory approvals and is expected in the second half of 2027, with Tesco saying the transaction should be broadly neutral to earnings per share and to the group's net debt/EBITDA ratio once the buyback completes.
The Czech Republic and Slovakia business generated combined sales of £2.9bn. They accounted for the majority of the £115m adjusted operating profit reported for the Central European region in the prior year. This region posted a 38.4% jump in adjusted operating profit to £63m in the first half of the current financial year on volume growth and cost savings.
The sale covers all stores and offices in both countries along with distribution centres in Kralupy, Presov and Beckov, and follows roughly £0.5bn already released since 2021 from the sale of non-core property assets in Central Europe, including a number of large shopping malls.
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Hungary is not part of the agreement and remains owned and operated by Tesco, which said it will continue to review all options for the future of that business.
"For Tesco, the transaction will further simplify the Group, increasing our focus on our core UK and Irish businesses and supporting our continued investment in our food-first retail ecosystem and the capabilities that will drive future growth, while enabling a further return of capital to shareholders," said chief executive Ken Murphy.
Goldman Sachs and Citi are acting as joint financial advisers to Tesco on the transaction.