Warehouse club operator Costco Wholesale Corp plans to buy out its joint venture partner Comercial Mexicana's 50 percent stake in its Mexican unit for 10.7 billion pesos ($766.79 million) and take full control of the business in its third-largest market.
The joint venture, Costco Mexico, which is operated by Costco Wholesale (COST.O), will pay a cash dividend of about 4.8 billion pesos ($343.98 million), to be split equally between Costco and Comerci (COMEUBC.MX), as the Mexican retailer is locally known.
Costco will use the dividend to fund the purchase.
Shares of Comerci surged after the announcement, advancing as much as 12 percent.
Comerci, which operates the upscale City Market stores, discount stores and restaurants, agreed to a debt restructuring deal with creditors in 2010 after heavy losses on currency derivatives caused it to default on obligations in late 2008.
"With this transaction, CCM will benefit from a stronger financial position that will allow it to significantly boost its growth outlook in the coming years," Comerci said in a statement.
The Costco-Comerci relationship dates back to the early 1990s when Costco merged with Price Co, with which Comerci had a joint venture partnership.
The deal is subject to approvals from the Mexican Federal Competition Commission and shareholders of Comercial Mexicana, the companies said in a statement.
Jaime Gonzalez Solana will continue as CEO of Costco Mexico.
Issaquah, Washington-based Costco operates 32 outlets in Mexico, its third largest market after the United States and Puerto Rico and Canada.
