LONDON, October 2- Britain’s biggest retailer Tesco has agreed to form a venture with China Resources Enterprise, but first-half profits fell by a third amid “challenging” conditions in Europe, it said on Wednesday.
The deal in China would create a market leader, Tesco said.
“Tesco and CRE today announce that they have entered into definitive agreements to combine their Chinese retail operations to form the leading multi format retailer in China,” a statement said.
The companies had revealed in August that they were in exclusive talks over a deal.
London-listed Tesco the world’s third biggest supermarket group after US retailer WalMart and number two Carrefour of France added that the move was part of its international strategy to tap further into fast-growing economies.
Under the deal, Hong Kong listed China Resources Enterprise (CRE) will have a stake of 80 percent and Tesco will have 20 percent, but this can rise to 25 percent after five years.
“We are delighted to work with CRE to create the leading Chinese retail business,” said Tesco chief executive Philip Clarke in the statement.
“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.
“This is very good news for customers and shareholders and a further demonstration of our commitment to build sustainable, profitable businesses, establish multichannel leadership in all of our markets and pursue disciplined international growth.”
The new venture will combines Tesco’s 134 Chinese branches, as well as its Chinese shopping mall business with the China Resources Vanguard business of 2,986 outlets.