As all Fools know, all goods are worth what someone else is willing to pay for them. Indeed, it is all well and good saying that “I think asset X is worth Y” but all that matters when selling is what the buyer is prepared to pay.
Moreover, I should know, having tried to sell my former house for a number of years. In the end, I had to accept that the market knew better than me and sold for a price that I wasn’t particularly happy with.
The above principal can be applied to any walk of life but, obviously, is especially true in the business world. Furthermore, when the asset you wish to sell is loss-making or is unattractive in some way, then it is doubly difficult to attain the price you seek.
This is the position in which Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) currently finds itself, with the company attempting to rid itself of the disastrous US operation, Fresh & Easy.
Indeed, Fresh & Easy is not a particularly attractive asset, so it is little surprise that Tesco is experiencing substantial difficulty in selling it. For starters, it has never come close to making a profit and, perhaps more importantly, its stores are located in sub-optimal places because its rivals have taken the best spaces with the highest footfall.
In addition, its rivals have been around for a long, long time and have firmly established their own brands and brand identities along the US west coast. Furthermore, Fresh & Easy has struggled thus far to successfully differentiate itself from rivals. It is no cheaper nor is the quality particularly noteworthy, either.
So, unlike in the UK where the likes of Lidl and Aldi have gained market share as a result of them being viewed as cheap, Fresh & Easy has been unable to establish repeat custom as it is too similar to the incumbents.
The result of this is that nobody wants to buy it. The result to Tesco looks set to be closure of the subsidiary and a vast write-off.
Clearly, this will not look good on Tesco’s income statement but, interestingly, the issues with Fresh & Easy make me want to buy shares in Tesco even more.
The main reason is that a write-off is already priced in. If it is announced, shares are unlikely to fall significantly. The flip-side is that any sale could be viewed as ‘good news’ by the market.
Furthermore, with shares yielding an impressive 4.1%, I’m happy to let the sale drag on while I pick up my inflation-busting dividend.
Of course, Tesco is not the only attractive income stock out there. In fact, the team at The Motley Fool has found one that it rates as The Motley Fool’s Top Income Share Of 2013.
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> Both Peter and The Motley Fool own shares in Tesco.
