Tesco sells BlinkBox to TalkTalk in £250m cost cutting drive

Tesco has sold its BlinkBox film streaming business and Tesco Broadband to TalkTalk for an undisclosed sum. Estimates of the deal suggest a value of around £5m.

The low price for the deal is indicative of the trouble that Tesco finds itself in, with BlinkBox reported to have lost £25m in 2013-14. The move was part of a divestment and restructuring programme that is expected to result in savings of £250m a year, based on a one-off cost of £300m. It has since emerged that the company is also to sell its BlinkBox music streaming service, probably at a significant discount to the £12m it paid for the service in 2012.

Tesco’s has been suffering from a number of problems which its new chief executive, Dave Lewis, is expected to address, not least of which is a black hole discovered in its accounts (a £263m overstatement of its profits).

A new UK and Ireland chief executive was announced, Matt Davies, who joins from Halfords. He will be replacing Chris Bush, who was one of a number of executives suspended as part of the investigation into accounting irregularities.

It has been acknowledged that part of the problem was a focus on overseas expansion, rather than addressing the evolution of its customer base. While other retailers developed extensive online operations, Tesco remained wedded to its large out of town operations. This is beginning to change as the sale announcement was accompanied by news that 43 stores are to close and 50 projects in development, many of which were large out of town stores, are to be cancelled.

The key question in the City was whether it was best for Tesco to undertake a rights issue, sell its high growth businesses or refocus in the UK through the sale of non-core UK operations. For example, Morgan Stanley valued its international operations at between £10.2 and £17 billion pounds, with its most lucrative non-core operations in South Korea and Thailand.

The decision is fairly clear now, and Tesco has confirmed that it has appointed Goldman Sachs to explore strategic options for its Dunnhumby business (which operates its Club Card business), including a potential sale, sale of shares or IPO.

In an annual statement, Lewis said that Tesco was going to focus on its customers, and their need for cost competitive groceries. It makes sense however that the company takes a long hard look at its position in the market, and explores more avenues to customer experience than simple cost-cutting.