Tesco to pay US$558m for venture with China resources: HONG KONG, Oct 2 — Tesco Plc, the largest UK retailer, will pay HK$4.33 billion (RM1.81 billion) to gain 20 per cent of a venture with China Resources Enterprise Ltd to extend its reach in the world’s most populous nation. The venture, announced in August, will combine Tesco’s 134 outlets and shopping-mall business in China with the almost 3,000 stores owned by the state-backed conglomerate in China and Hong Kong. The two companies plan to run supermarkets, convenience stores and liquor shops in the Greater China region, China Resources, which will hold 80 per cent of the venture, said in a statement today. The deal would allow Tesco to expand in China’s US$574 billion (RM1.86 trillion) hypermarket industry while ending almost a decade of independent operations as sales fall amid competition from rivals such as Sun Art Retail Group Ltd China Resources, which runs the country’s second-largest hypermarket business, would gain from Tesco’s expertise in areas including private labels, e-commerce and international sourcing, the companies said. “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,” Tesco Chief Executive Officer Philip Clarke said in a separate statement. China Resources rose 1.4 per cent to HK$25 as of 11:36am in Hong Kong trading. The stock has declined 11 per cent this year, while the city’s Hang Seng Index has gained 1.9 per cent. Tesco was little changed at 359.10 pence in London trading yesterday. Board seats Tesco will have two out of a maximum of 10 seats on the board of the venture, whose annual sales are estimated at £10 billion (RM52 billion), the Cheshunt, England-based company said. Completion of the deal is expected in the first half of 2014, subject to regulatory and shareholder approval. Retailers including Tesco face slowing economic growth amid competition in China, where gross domestic product expanded 7.5 per cent in the second quarter from a year earlier, the second straight deceleration. In addition to hypermarkets, Tesco owns 11 Lifespace shopping malls in China and eight in 50-50 joint ventures with local partners. China Resources and Wal-Mart Stores Inc are tied for second place in the country’s hypermarket industry with an 11 per cent share each last year, according to Euromonitor International. Sun Art, backed by France’s Groupe Auchan, was the market leader with 14 per cent, while Tesco ranked eighth with 2.4 per cent. Revenue in China’s hypermarket industry will probably expand to 864 billion yuan (RM457 billion) by 2015, a 50 per cent gain from last year, according to Euromonitor. Global exit The UK retailer is exiting international markets after almost two decades of overseas expansion took the focus off its home base. Tesco agreed in June 2012 to pay £40 million to leave its Japanese joint venture, and said last month that it was exiting the US. Tesco started selling goods in China in 2004 and generated £1.4 billion of sales in the country last fiscal year, according to its website. Sales for its China stores open at least a year dropped 4.9 per cent in the first quarter amid consumer concern over bird flu and weaker demand for pork after a national food safety scare. Tesco scaled back efforts in China last year to focus on building more profitable businesses, Clarke said in April. The company has adopted a more cautious stance in the nation and shut five underperforming outlets to focus on its strongest regions, it said. Tesco is scheduled to report first-half results today. — Bloomberg dlvr.it/4447rZ
Posted on: Wed, 02 Oct 2013 07:04:34 +0000
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