By Denny Thomas and Saeed Azhar
HONG KONG/SINGAPORE (Reuters) - Tesco Plc (L:TSCO) rebuffed an approach from billionaire Dhanin Chearavanont in December to buy the British retailer's Thai unit, but undeterred, the tycoon is building financial firepower for another attempt, people familiar with the matter said.
Thailand's second-richest man has added UBS (VX:UBSG) and Siam Commercial Bank (SCB) (BK:SCB) to the list of banks to help finance and advise on a bid for Tesco Lotus after his preliminary talks to buy the business valued at about $10 billion (7 billion pounds) ended without a deal, the people said. Bank of America Corp (N:BAC) had assisted the tycoon in the earlier talks, they said.
While it is not known why Tesco turned down Dhanin's approach, his sustained interest in the asset could be positive for Britain's biggest retailer, which is battling sluggish growth at home and has been hit by ratings downgrades and an accounting scandal.
Tesco shares rose as much 1.9 percent after the Reuters report, bucking an 0.8 percent fall in the benchmark share index (FTSE). The shares have risen 22.7 percent so far this year, recovering from a 43.5 percent slide in 2014.
For Dhanin, 76, a potential Tesco Lotus purchase will significantly bolster control over the Thai retail market after he bought back Siam Makro pcl (BK:MAKRO) in 2013 for $6.6 billion in a highly levered-up deal valued at 53 times price-to-earnings ratio.
Tesco and the Thai tycoon are not currently engaged in any talks, though Dhanin and his advisers are prepared to proceed with an offer if Tesco decides to sell the Thailand operations, the people added. The people declined to be identified because the discussions were confidential.
Tesco declined to comment on Dhanin's approach. CEO Dave Lewis, who took charge in September, said last month while announcing an overhaul of Tesco's operations that he was "committed to keeping all of the operations we have overseas, until we make any decisions otherwise".
TESCO'S DILEMMA
Tesco's dilemma is whether to hold on to the growth market of Thailand or sacrifice that for cash. It has already scaled back in Asia and now operates in South Korea, Malaysia and India.
"The Tesco management has bought some time with the restructuring announced last month. But investors are closely monitoring the progress and the next earnings before stepping up pressure," one senior Hong Kong M&A banker, who is advising another buyer interested in Tesco's Asian assets.
A spokesman for Charoen Pokphand Group (CP Group), Dhanin's flagship company, declined to comment. A Hong Kong-based Bank of America spokeswoman and spokesmen for UBS and Bangkok-based Siam Commercial also declined to comment.
Dhanin, with a net worth of $11.5 billion as of June last year, is the chairman of CP Group, which was founded in 1921 and has businesses spanning retail, agro-industry, automotive and financials among others. At the end of 2013, the group had $41 billion in revenue.
Tesco bought a controlling stake in Dhanin's supermarket business Lotus in 1998 in the aftermath of the Asian financial crisis, paying 206 million pounds. That business now has more than 1,700 shops and represents nearly three-fourths of all of Tesco's Asia outlets.
Morgan Stanley said in a report last week the Thai business is Tesco's most valuable international asset, valuing it between 4.7 billion pounds-6.5 billion pounds ($7.2 billion-$9.9 billion).
If Tesco decides not to sell, Dhanin's options are limited as he wants to do a consensual deal, said a person with direct knowledge of the matter. "Dhanin is not aggressive, that is not his style. He won't go hostile," said the person.