The acquisition of up to 85 per cent of Etablissement Catteau, which operates Cedico supermarkets, hypermarkets and convenience stores, gives Tesco a toehold on the Continent and the opportunity to expand.
Tesco is buying 57 per cent of the shares from the controlling Catteau family and its advisers. It is also making a public offer to take its holding up to 85 per cent in Catteau, which is quoted on the Lille stock exchange. The Catteau family will retain 15 per cent and continue to manage the business.
David Reid, the finance director, said Tesco would add value to Catteau through its expertise in distribution, store operations and merchandising.
There was scope to expand into neighbouring regions to the Nord- Pas de Calais area, where most of the shops are located. But Tesco's main expansionary thrust would remain at home.
Mr Reid said Tesco had looked at investing in other countries, but France appealed most because it was a large market, 'westernised' in marketing techniques and less risky than areas such as Eastern Europe, Spain and Greece.
Catteau made pre-tax profits of Fr126m last year on sales of Fr2.9bn. Profits have grown by a compound 25 per cent over five years.
The net margin of 4.4 per cent, though low by British standards, is among the highest in the French grocery trade, an industry notorious for price-cutting and low margins.
Tesco is financing the purchase with new borrowings, lifting its gearing from 20 per cent to around 27 per cent. It said the deal would slightly enhance earnings per share for the year to 26 February 1994.
Mr Reid, along with three other Tesco executives, will join the Catteau board.
France has proved a tough market for British food retailers. Marks & Spencer is highly successful now but only after years of struggle. Iceland Frozen Foods' French venture failed.
Carrefour, the French supermarket giant that failed in its first attempt to colonise Britain, is poised to try again with its Ed Discount Food Store format.Reuse content