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Tesco and China Resources Enterprise to create joint venture

Staff writer ▼ | October 3, 2013
Tesco and China Resources Enterprise have entered into definitive agreements to combine their Chinese retail operations to form the multi-format retailer in China.
Tesco
TescoTesco and China Resources Enterprise have entered into definitive agreements to combine their Chinese retail operations to form the multi-format retailer in China.


Tesco will combine its 134 Chinese stores as well as its Chinese shopping mall business with the China Resources Vanguard business (CRV) of 2,986 stores.

The joint venture will benefit from CRV's strong brands, deep understanding of local Chinese customers, established nationwide infrastructure, local sourcing skills, strong property development and management skills and deep and established local, regional and national government relationships.

Tesco will bring to the joint venture retail best practices in areas such as retail operations, customer analytics, private label development, supply chain management, retail management development as well as its strong international sourcing capabilities, digital commerce and globally-recognised expertise in the development of online sales channels.

Tesco will receive an initial shareholding of 20% of the enlarged issued share capital of the joint venture entity, with a right to acquire a further 5% at fair market value after five years following completion of the transaction. The board of directors of the joint venture will consist of a maximum of 10 directors.

Tesco will be entitled to appoint two directors to the joint venture Board and will have a range of shareholder and governance rights consistent with its 20% shareholding. Philip Clarke and Laurie McIlwee will represent Tesco on the joint venture board.

Tesco will also make a payment of HK$1,000m to CRE at completion and a further HK$1,000m on the first anniversary of completion.

Upon completion of the transaction, Tesco's interest in the joint venture will be accounted for as an associate. Tesco's cash contributions will be funded from existing Tesco resources. The transaction constitutes a Class 2 transaction for the purposes of the UK Financial Authority's Listing Rules and, as such, Tesco shareholder approval is not required.


 

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