E-Land in talk to sell stores to Tesco S.Korea unit

SEOUL (Reuters) - Unlisted South Korean retailer E-Land said on Wednesday it was in talks to sell 35 discount stores to British retail giant Tesco Plc's (TSCO.L) South Korean unit, sending shares of rivals sharply lower.

"Samsung Tesco is a prime candidate and a deal is imminent," an E-Land spokesman told Reuters, referring to the Tesco unit. He declined to give further details on the deal's price and timing.

An earlier local report said E-Land was selling the stores to Tesco for 2.3 trillion won ($2.2 billion). The two sides are expected to sign a deal on Wednesday, Yonhap News said, citing company and industry sources.

A spokesman for Samsung Tesco said nothing had yet been decided and the company had no comment.

E-Land, previously known as a fashion retailer, bought 32 outlets from France's Carrefour (CARR.PA) in 2006 for $1.85 billion. Bigger South Korean rivals Lotte Shopping Co. (023530.KS) and Samsung Tesco, 94 percent owned by Tesco, were left empty-handed in the deal.

News of the deal Wednesday sent shares in top discount store operator Shinsegae Ltd (004170.KS) down 4.43 percent to 583,000 won at 0045 GMT after tumbling nearly 6 percent on fears of increased competition. Lotte Shopping shares fell 2.54 percent to 325,500 won, against the wider market's 0.11 percent gain.

After the 2006 purchase, E-Land conducted a thorough remodeling of the former Carrefour stores, giving them a new brand name and seeking to distance itself from the warehouse-like image that was shunned by South Korean consumers.

But E-Land has suffered from labor unrest over contract workers, which has disrupted operations at some of its stores.

Last week the economy ministry said Tesco would invest $100 million in a logistics centre in central Korea which is expected to open in December 2010.

($1=1045.4 Won)

(Reporting by Park Ju-min and Rhee So-eui; editing by Marie-France Han and Keiron Henderson)