(Refiled to detach text from earlier story)
* Tesco Kipa shares plunge
* Tesco's 191 stores in Turkey see poor trading
* Analysts predict more store closures
* Turkey talks part of strategy to focus on Britain
* Tesco CEO under increasing pressure
By Asli Kandemir
ISTANBUL, May 27 UK-based retailer Tesco Plc
has failed to reach a deal with unnamed third parties
over its struggling business in Turkey, a new setback for Chief
Executive Philip Clarke as he seeks to rein in global expansion
to focus on reviving the business at home.
Tesco and the company's Turkish subsidiary Tesco Kipa
, which it bought in 2003 and now operates 191 stores,
made the announcement in brief statements on Tuesday.
Shares in Tesco Kipa fell 9.5 percent to 1.34 Turkish lira
($0.64), valuing the company at around 1.78 billion lira ($856
million). Tesco's shares were down 0.1 percent at 303.70 pence
at 1000 GMT.
Under pressure to focus on turning around falling sales in
Britain, where Tesco generates two thirds of its revenue, Clarke
has already done deals to sort out other problem businesses
abroad - in Japan, the United States and China.
"For Tesco, like in China, like in America, like in various
other deals they've done, this is about a considerable amount of
capital investment that hasn't produced any return," said
Mike Dennis, analyst at Cantor Fitzgerald.
"This is probably going to lead Tesco to close more stores
in the central part of Turkey and scale down its investment into
Turkey. So by definition the drag on Tesco's group return on
capital is going to continue."
Kipa said in its statement on Tuesday that Tesco's talks
with various companies "regarding partnership options" had ended
without agreement, while Tesco only said it had ended talks
concerning "potential options" for its Turkey business.
Instead, Tesco said it would accelerate a plan to focus the
business on Kipa's heartland around Izmir on Turkey's western
coast, which it has said is very profitable, while "minimising
capital spending and improving profitability".
"The efforts of the team in Turkey are already evident in a
stronger customer offer and improved performance and there is
more we can do to drive stronger cash generation and returns,"
Tesco said in a statement.
Tesco has been restructuring Kipa's business in eastern
Turkey around Ankara, where its stores are bigger and the brand
is not so well known, closing nine loss-making stores in the
2013/14 fiscal year.
Tesco said last month it had seen a "gradual improvement" in
like-for-like sales in Turkey over the 2013/14 year although
revenue from the business fell 9 percent to 679 million pounds
($1.14 billion), as Kipa suffered from "strong competition and
our relative exposure to large store formats".
A Tesco Kipa official who declined to be named told Reuters:
"We think that Turkey is full of good opportunities and that
Tesco has reached the right decision ... We think our
performance in the last quarter is a good start on this path."
Tesco Kipa said in February it was in preliminary talks
"with various companies regarding various options" after the
Financial Times had said one possibility involved a combination
with the country's biggest food retailer, Migros.
Migros is owned by private equity firm BC
Last month, Clarke came under new pressure as Tesco reported
a second straight year of falling profit and took a 734
million-pound charge on its European and Chinese businesses.
Tesco's British business is still losing market share even
after Clarke invested over 1 billion pounds on improving
services and stores, prompting the firm to abandon its
industry-leading margin target two months ago.
($1=0.5936 British pounds)
($1 = 2.0829 Turkish lira)
(Additional reporting by Kate Holton and Neil Maidment in
London; Writing by Emma Thomasson; Editing by Daren Butler and