Tesco plc and China Resources Enterprise (CRE) Ltd have announced that the two companies have entered into a joint venture (JV) arrangement to combine their Chinese retail operations to form the leading multi-format retailer in China.
This follows an announcement in early August of their agreement on a Memorandum of Understanding on the matter.
The JV combines Tesco’s best-in-class retail practices, international sourcing and digital/e-commerce capabilities with CRE’s strong local knowledge and brand to create a business with sales approaching £10bn, in which Tesco will have a 20 percent stake.
The new joint venture will be the leading retailer in seven of the eight most populous and highest GDP provinces in China.
Tesco will combine its 134 Chinese stores as well as its Chinese shopping mall business (together ‘Tesco China’) with the China Resources Vanguard business (CRV) of 2,986 stores.
The JV will secure significant synergies from combining the two operations.
Tesco is to make a cash contribution to the JV of HK$2,325 million (about $363 million) and will also make a payment of HK$1,000m (about $156 million) to CRE at completion and a further HK$1,000m (about $363m) on the first anniversary of completion.Tesco will have two seats on the board of a maximum of 10 members.Completion is expected in the first half of 2014, subject to regulatory and CRE shareholder approval.
Philip Clarke, chief executive officer of Tesco, says his company is: “delighted to work with CRE to create the leading Chinese retail business. Through this deal, we have a strong platform in one of the world’s most exciting markets and it will move us more quickly to profitability in China. This is very good news for customers and shareholders and a further demonstration of our commitment to build sustainable, profitable businesses, establish multichannel leadership in all of our markets and pursue disciplined international growth.”
Hong Jie, chief executive officer of CRE, says: “Along with the internationalisation of the Chinese economy, CRE has developed successful partnerships with many well-known international companies in China. We are excited about continuing this track record of our retail business by joining forces with Tesco. The JV brings together the individual strengths and advantages of Tesco and CRE, a compelling combination of local customer insights and international retail best practice, creating success and value for both groups, as well as propelling the internationalization of China’s retail industry. The partnership will be strongly placed to lead the development of retailing in China and create value for shareholders and customers.”