Tesco Plc (“Tesco”) and China Resources Enterprise Limited (CRE) have announced that they have entered into a Memorandum of Understanding and are in exclusive talks to combine their Chinese retail operations to form the leading multi-format retailer in China.
The partnership would bring together CRE’s deep understanding of local customers, established nationwide infrastructure and proven track record as a partner with Tesco’s global retail expertise, international sourcing scale and supply chain capabilities. The proposed joint venture would create a business with sales of some $19.4 billion (£10 billion), in which CRE and Tesco’s effective interests are expected to be 80 percent and 20 percent respectively.
It would involve CRE combining its CR Vanguard business, which currently operates 2,986 stores across China and Hong Kong, with Tesco China’s 131 stores and shopping mall business.
The intended partnership follows a series of highly successful joint ventures between CRE and other multi-national corporations and is consistent with Tesco’s stated strategy of focusing on profitable routes to growth in fast-growing but less mature markets, with a disciplined approach to the allocation of capital.
The transaction is subject to further due diligence and agreement of final terms. There is no certainty that a transaction will occur.