LONDON (FNS) -- Tesco was expected to complete the acquisition of a majority stake in Hungarian food retailer Global TH by the middle of May.
The purchase price was to be about 12 million pounds ($18 million).
Global operates 43 stores in northwest Hungary, with a total selling area of about 100,000 square feet, Tesco said. The stores are centered in a region about 50 miles west of Budapest, a Tesco spokesman said. Global had pretax profits of about 1 million pounds ($1.5 million) on sales of 25 million pounds ($37.5 million) for the year ended Dec. 31, 1993. Its assets at that date totaled about 8 million pounds ($12 million), Tesco said. Tesco's move is the first investment by any U.K. food retailer into Eastern Europe, a market companies have been eyeing for the last several years. Sir Ian MacLaurin, Tesco's chairman, said the company was invited by the Hungarian government two years ago to advise Global on such issues as store layout, merchandising and how to build up a retail chain. The purchase of a stake is aimed at strengthening its ties with the Hungarian company, he said. It also will give Tesco experience in Eastern Europe that might be useful in the future if it makes further investments in the region.
"The investment in Global isn't anything huge for us," MacLaurin said. "It's a way for us to put a toe in the water and learn about the Eastern European market." The Hungarian food retail market is dominated by regional chains, many of which remain state-owned. Tengelmann Group of Germany and Julius Meinl of Austria are two other Western European retailers that have invested in chains in Hungary.
"We have maintained a watching brief on Eastern Europe for a number of years," said John Gildersleeve, trading director at Tesco. "We recognize that of all the countries there, Hungary, although one of the smallest, appears to have developed further towards a market economy."
Global has planned a flotation on the Budapest Stock Exchange as part of the Hungarian government's privatization program. Tesco will subscribe for shares in Global as part of this capital-raising exercise and its investment will give it slightly more than 50% of Global's shares, MacLaurin said. Gildersleeve will join the Global board.
The money being raised will enable Global to increase its store development program in Hungary and to develop larger stores of about 20,000 square feet, a Tesco spokesman said. Tesco will advise the company on this development as well as on refitting older stores and on logistics and distribution technologies. Global plans to open about three or four stores in 1994.