Tesco plc and China Resources Enterprise LTD (CRE) announced this morning that they have entered into definitive agreements to combine their Chinese retail operations to form the leading multi-format retailer in China.
This follows the announcement on 9 August that the two had agreed a memorandum of understanding.
According to Tesco, it will have a 20% stake in the joint venture which will have sales approaching £10 billion. It said the business will be leading retailer in seven of the eight most populous and highest GDP provinces in China.
Tesco is to combine its 134 Chinese stores as well as its Chinese shopping mall business (Tesco China) with the China Resources Vanguard (CRV) business of 2,986 stores.
Tesco will make a cash contribution to the joint venture of £185million. It will also make a payment of £80 million to CRE upon completion and a further £80million the first anniversary of completion.
“We are 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," said Tesco CEO Philip Clarke.
"This is very good news for customers and shareholders and a further demonstration of our commitment to build sustainable, profitable businesses," he said.
Tesco will have two seats on the board of a maximum of 10 members. Philip Clarke and Laurie McIlwee will represent Tesco on the JV board.
Completion is expected in the first half of 2014, subject to regulatory and CRE shareholder approval.
The announcement of this partnership came on the same day that Tesco released figures indicating significant European profit losses.
