Tesco's £950m buy out of RBS

Jul 29 2008

TESCO has agreed a £950m deal with Royal Bank of Scotland to take full control of the pair’s Tesco Personal Finance joint venture.

Tesco said full ownership would enable it “over time” to extend its financial services business from a collection of products to a full service retail bank.

The disposal of RBS’s 50% holding comes at a crucial time for the NatWest owner as it looks to bolster its battered balance sheet.

Tesco Personal Finance was founded in 1997 and now has more than five million customer accounts. It generated profit before tax of £206m last year, with the figure expected to exceed £240m this year.

The main activities are in general insurance, credit cards and personal loans, personal saving products, online insurance comparison through Tesco Compare and a network of cash machines. Yesterday’s deal is part of the company’s strategy to grow its share in the services sector, which also includes telecoms and internet home shopping.

Chief executive Sir Terry Leahy said: “Services are bigger and faster-growing markets than food. As consumers look to make every pound work harder, it is a good time for Tesco to expand its presence.”

The business will be led by Benny Higgins, who has run the retail banking divisions of both RBS and Halifax Bank of Scotland.

Tesco said the headquarters of the business would remain in Edinburgh, with around 200 staff head office staff also due to transfer to Tesco.

RBS chief executive Sir Fred Goodwin said Tesco Personal Finance was now a “strong and successful joint venture”.

He added: “At this stage of its maturity, it is appropriate for Tesco Personal Finance to move to single ownership for the next stage of its growth.”

RBS recently raised £12bn from a rights issue, but attempts to secure another £7bn from the sale of Churchill and Direct Line insurance business look likely to be frustrated.

Reports at the weekend said Sir Fred may decide to keep the operations because buyers have drifted away.

Final offers are due by the end of this month, but the Financial Times said recently US insurer Allstate was the only remaining serious bidder for the assets. Most analysts think £5 billion is the most that RBS can hope for.

Today's deal is subject to approval by the Financial Services Authority. The acquisition is expected to be completed in the final quarter of the year.