Costco Buys Out CMM in Mexico JV

Costco is acquiring Controladora Comercial Mexicana’s 50% stake in their Costco de Mexico joint venture, for MXP10.65bn ($767m), the companies say. As part of the transaction, Costco Mexico is paying out a MXP4.77bn dividend, 50% of which goes to Costco to help it fund the purchase of CCM’s stake, along with cash on hand and investment balances. CCM will receive the other 50% of the dividend, and use it and the proceeds from the sale to pay down debt. “We think it is a good use of our cash, and it happened now,” Costco CFO Richard Galanti says on a conference call when asked about the motivation and timing of the deal. “Costco operates a very profitable business in Mexico and we think this transaction was something the company has wanted to do for some time,” Credit Suisse says in a report, calling the deal “positive for both companies.” Costco Mexico will now be able to open stores at a faster pace, changing the competitive dynamics of the sector, the bank says, noting that CCM, too, will have a better financial position to compete in its portion of the sector. The deal should be accretive for Costco in 2013, CS says. CCM, which had to restructure its debt in 2010, should see its leverage plummet from 4.5x net debt/Ebitda to 1.4x after the deal is complete. CCM chairman Guillermo Gonzalez Nova and CEO Carlos Gonzalez Zabalegui will remain on Costco Mexico’s board of directors, and Jaime Gonzalez Solana stays on as Costco Mexico CEO.