Tesco shares rebound on restructuring plans | Business| Economy and finance news from a German perspective | DW | 08.01.2015
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Tesco shares rebound on restructuring plans

The beleaguered British retailer Tesco has unveiled a new cost-cutting scheme to revive its finances. The restructuring plan will include asset sales, lower capital spending and closing its head office.

The embattled British supermarket chain Tesco announced on Thursday that it was slashing capital spending, scrapping its dividend and shuttering its headquarters in a bid to cut overhead costs following years of market share losses and a damaging accounting scandal.

Tesco said it would cut prices by 25 percent on about 380 brand-name goods in order to compete with fast-growing budget grocery giants Aldi and Lidl, which have muscled themselves greater market share on bargain prices.

The beleaguered retailer also said it would close 43 stores across the United Kingdom that were not turning a profit and it would shelve plans for the construction of 49 new locations. Its final salary pension scheme will also be eliminated.

Tesco shares spiked as much as 15 percent on the news - their biggest one-day gain since 1988. Shareholders had been put off recently by the biggest crisis in the company's 96-year history, in which Tesco's bottom line was undercut by expensive overseas expansion and competition from discount retailers at home.

"Tesco is leading the FTSE 100 leaderboard after announcing a series of cost-cutting measures to turn the troubled retailer around," IG analyst David Madden told the news agency AFP.

Tesco also issued four profit warnings in five months last year and grossly overstated its expected profit for the first half of 2014 by 250 million pounds ($405 million, 321 million euros at the time). That accounting scandal drew the eye of British regulators and led the retailer to suspend four senior executives.

A fall in Tesco's bonds on Wednesday highlighted the precarious situation in which the retailer still finds itself. Debtholders worry the impending asset sales may not be enough to keep its credit rating above junk status, as a hefty writedown of its portfolio is still possible.

cjc/msh (Reuters, AFP)