Tesco has announced it will be ending its independent operations in China to embark on a joint venture with China Resources Enterprise (release).
Tesco will merge 131 of its stores with 2.986 of CRE’s, taking advantage of the Chinese company’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”. Tesco will have a 20 per cent stake compared to CRE’s 80 per cent.
A source close to the situation was quoted by Bloomberg saying that Tesco may pay several hundred million pounds to combine their business in China.
The proposed venture would create a business with sales estimated at £10bn.
Tesco has been losing momentum in China, a country it has operated in since 2004, as more competition emerges from regional rivals.
Tesco stresses that there is no certainty the transaction will occur, and that it is subject to further due diligence and agreement of final terms.
Earlier this morning, China reported retail sales rose by 13.2 per cent in July, down from 13.3 per cent growth the month before and missing expectations of 13.5 per cent. In addition, consumer price inflation held steady, and there was an unexpected boost in industrial output.