Costco Wholesale is buying the 50 percent stake held by Controladora Comercial Mexicana in its Mexican division for about $760.4 million, the companies announced Thursday.
Costco and Controladora have each had a 50 percent interest in Costco de Mexico, which Costco Wholesale ran.
At the same time, Costco Mexico declared a dividend of approximately $340.9 million, which will be split evenly between a Costco Wholesale subsidiary and Controladora.
Costco Wholesale said it will use its share of the dividend along with cash on hand and investment balances to pay for the acquisition.
The buyout will consolidate control under the management of Issaquah-based Costco Wholesale and give Mexico City-based Controladora cash to pay down debt.
The joint venture has grown little in recent years, so Costco Wholesale will probably put more money into its Mexican operations, said Carlos Hernandez, an analyst with Planet Retail in Madrid.
"Costco hasn't grown that much in Mexico," Hernandez said.
"Controladora didn't have money to expand its own stores let alone the joint-venture stores with Costco. Now, Costco can expand into other cities."
Costco Wholesale has 32 stores in Mexico, the same number it had in 2009, Hernandez said.
Janney Capital Markets analyst David Strasser said he expects the deal will add 10 to 12 cents per share to Costco Wholesale's earnings over the next twelve months, and he raised his estimates based on the announcement.
Stifel Nicolaus analyst David Schick was bullish on the long-term prospects for business in Mexico
Costco Mexico CEO Jaime Gonzalez Solana will remain in the post and Controladora Chairman Guillermo Gonzalez Nova and CEO Carlos Gonzalez Zabalegui will continue as board members.
The deal still needs the approval of Controladora shareholders and the Mexican Federal Competition Commission.
Costco Wholesale runs 602 warehouses, including 435 in the United States and Puerto Rico, 82 in Canada, 22 in the United Kingdom, 13 in Japan, eight in Taiwan, seven in South Korea and three in Australia.
Its stock closed Thursday at $89.83, up $2.40, or 2.7 percent. It has had a 52-week trading range of $70.22 to $92.10 per share.
Information from The Associated Press and Bloomberg News is included in this report.
South Korea's Lotte Shopping abandons plan to start cash-and-carry venture in India - Economic Times
The retailer, one of Asia's largest with a presence from Russia and China to Vietnam and Indonesia, reckons high property prices and the complex nature of the business make wholesale retailing an unviable proposition in India, a person with direct knowledge of the development said.
The person added that Lotte Shopping had registered Lotte Cash and Carry India Pvt. Ltd with the idea of following in the footsteps of the world's top retailers, including Walmart Stores Inc of the United States and France's Carrefour SA.
Frustrated after waiting for years for India to open up its highly regulated multi-brand retailing for overseas investments, Walmart and Carrefour have rolled out cash-and-carry stores, which sell their wares to other retailers and businesses. Foreign retailers are allowed to own 100% local subsidiaries in wholesale retailing ventures.
Lotte had put together an eight-member team of business development executives, half of them Korean nationals and half Indians. The team began surveying the cash-and-carry model and scouting around for properties in various cities including Mumbai and Pune. Within four months the team concluded that cash-and-carry was a tough model to turn profitable in the country, prompting them to abort the proposed venture, said the person quoted above.
Now, Lotte Shopping has shelved its India plans and its team of Korean executives have either left the country or are in the process of leaving India bag-and-baggage, the person said. The Indian executives barring one have also left. The MD of the company Jin K Kim has also returned to South Korea.
A Lotte Shopping spokesman in Korea said the retailer's executives constantly travel to India to assess the investment climate there. The spokesperson said the company is "still trying" and "waiting for a chance" to open stores in India without specifying when. "We still have two corporate bodies'' in India, he said.
Lotte Shopping had closed its New Delhi office two years ago even as it maintained an office in Mumbai. The person aware of the development said Lotte saw little potential to open its supermarkets or departments stores catering to the burgeoning middle class in India as there are vociferous political opponents against liberalizing the country's retail sector for foreign supermarket operators.
The political standoff in India stems from the fear that allowing foreign supermarket chains in a sensitive sector would drive many of the estimated 12 million small shopkeepers out of business.
Around six years ago, Lotte Shopping had opened a liaison office in New Delhi's Kasturba Gandhi Marg to study the country's retail market and was talking to potential Indian partners even as Lotte's real estate unit was exploring possibility of entering the country's booming property market by building townships in Greater Noida or Gurgaon.
Now, even the real estate representative has left India, according to a former Lotte Shopping employee requesting anonymity. He says Lotte now plans to focus on its retail businesses in China and Indonesia instead.
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