Tesco PLC (LSE:TSCO) has sold the majority of its banking operations to Barclays PLC (LSE:BARC) for around £600 million after striking a long-term strategic partnership.
The UK’s biggest food retailer said the majority of the proceeds would be returned to shareholders in the form of an incremental share buyback.
Combined with the previously announced special dividend of £250 million paid by Tesco Bank in August 2023, this is expected to result in total cash received by Tesco of around £1 billion, Tesco said.
Chief executive Ken Murphy said: “The transaction will also significantly reduce our financial liabilities, in turn strengthening our balance sheet and allowing us to focus on continuing to grow our core retail business.”
As part of the initial 10-year partnership, Tesco has sold its credit cards, loans and savings operations to Barclays, removing £7.7 billion of capital-intensive assets and £6.7 billion of financial liabilities from its balance sheet.
Tesco said it would retain all other existing activities of Tesco Bank, including insurance, ATMs, travel money and gift cards.
It said these are capital-light, profitable businesses with a strong connection to its core retail offer.
Tesco said the incremental share buyback, plus the combined effect of the sale of the banking operations and formation of the partnership is expected to be mildly accretive to earnings per share.
Barclays said the transaction will not materially impact planned financial returns or distributions.
The lender said it would be financed from existing resources, and is expected to reduce Barclays' CET1 ratio by around 0.3% upon completion.
Around 2,800 Tesco staff will transfer to Barclays with the deal set to complete in the second half of 2024.