Costco Buys Out Mexico Partner

ISSAQUAH, Wash. — Costco Wholesale Corp. here said Thursday it has reached an agreement with its joint-venture partner in Costco Mexico to purchase its partner's 50% interest for approximately $760.4 million.

The joint venture in Mexico, which operates 32 stores, has been 50% owned by Costco and Controladora Comercial Mexicana since the early 1990s, with its first warehouse club opened early in 1992.

Richard Galanti, executive vice president and chief financial officer of Costco, said the U.S. company has always been responsible for management of the joint venture, and the operation of the clubs in Mexico will not change following this transaction.

"The only difference will be who owns the shares," he explained. He also said the performance of the clubs in Mexico has been "a little better than our company average over the last few years."

2012 SN Top 75: Costco Wholesale Corp. Ranks No. 3

Costco said the joint venture has declared a cash dividend of approximately $340.85 million — half of which is payable to a subsidiary of Costco and 50% to CCM. Costco said it will use proceeds from the dividend and existing cash and investment balances to fund the purchase.

Closing of the transaction is subject to approvals by the Mexican Federal Competition Commission and shareholders of CCM.

Following the announcement of the agreement, Moody's investors Service, New York, said the purchase would have no impact on Costco's A1 senior unsecured rating or its stable outlook and should be viewed as a credit positive.

"The 50% share buyout decision is the logical next step in the prudent and conservative strategy Costco has thus far employed for expansion into international markets where its concept resonates," Moody's said.