Japan's Aeon Co is interested in buying the Malaysian operations of Tesco, which is valued at about £900 million pounds.
according to industry sources.
Japan's largest retailer has been venturing into Southeast Asia where purchasing power is rising in fast-growing economies. In contrast, growth has been hampered at home by deflation, sluggish consumer spending and a shrinking population.
It bought the Malaysian arm of French retailer Carrefour in 2012 for €250 million and last year expanded e-money services in Thailand.
Buying Tesco's operations would make Aeon Malaysia's biggest hypermarkets group.
The Japanese retailer has 28 hypermarkets in the country and plans to open 100 more stores in various formats by 2020.
Aeon also owns 51.7 per cent of Aeon Co M Bhd, which has 29 outlets and four MaxValu supermarkets in Malaysia.
Tesco is currently seeking buyers for its South Korean business and a stake in data-gathering arm Dunnhumby, to fund a turnaround in its home market.
Britain's biggest retailer is recovering from an accounting scandal and the loss of market share to discount chains Aldi and Lidl.
Aeon, which started out selling traditional kimono clothing in the late 1700s, is keen to buy Tesco's Malaysian unit and has informally discussed its interest with corporate advisers, one person familiar with the matter said.
"It's still in the very early stage.It would only come after they (Tesco) are done with South Korea and Dunnhumby."
Tesco, which has not expressed any intention to sell its Malaysian business, declined to comment. A spokesman for Aeon said the company was not in negotiations with Tesco.
Another source familiar with the matter said Aeon had been calling investment banks to discuss advisory roles. No adviser has yet been appointed, the source added.
"The sale of the South Korean unit will buy Tesco some time, so they could delay any further action until around March next year," this source said.
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