Metro AG and Wumei Technology Group announced on Friday that they have entered into agreements to form a joint venture to further consolidate Wumei's position as a national retailer and fuel Metro's growth and digital transformation.

In the joint venture, Wumei will hold a 70 percent stake and Metro AG will hold 20 percent. Metro AG's current minority shareholders in Metro China have agreed to this transaction and intend to sell their entire 10 per cent stake to Wumei.

Wumei will ultimately hold an 80 per cent stake in the resulting joint venture upon completion of the transactions.

Upon closing, Metro AG will receive net proceeds of more than €1 billion.

The transaction values Metro China, at an implied total enterprise value of €1.9 billion. The transaction is expected to close no later than the second quarter of calendar year 2020.

Jason Yu, general manager of Kantar Worldpanel, said the price indicates the investors' optimistic views on Metro's profiting capacities, if compared with the Carrefour's deal to Suning.com.  On June 23, home appliances retailer Suning announced it was buying an 80 percent stake in French supermarket giant Carrefour China in an all-cash deal worth 4.8 billion yuan ($670 million).

"Metro's years of penetration into the country's middle class consumers, and its strengths in product quality and supply chains, have given it an advantage in the deal," said Yu.

The joint venture will enable Wumei, its technology partner Dmall and Metro AG to leverage their market-leading propositions, and significant wholesale, retail and digital expertise to accelerate Metro China's growth and digital transformation, according to the Beijing-based retailer.

Metro China, actived in the country since 1996, has grown into a profitable business serving 17 million customers in 97 stores across China. It has developed sales channels including O2O as well as fast-growing food service distribution and welfare and gifting business lines. But its business-to-business model has found challenging to apply to local market where caters and shop owners prefer to shop in wholesale markets or directly sourced from distributors, said Yu.

Dr. Wenzhong Zhang, founder and chairman of Wumei, said: "We are convinced that Wumei and Dmall are the ideal partners for Metro AG to fully realize the potential of Metro China given our unique combination of retail DNA and digital excellence, our local knowledge and our strong and proven expertise in consolidating and growing multinational brands in China to deliver an enhanced customer proposition.

Wumei will operate Metro China as a standalone business led by Claude Sarrailh, Metro China's Chief Executive Officer, and his current management team.

Wumei Technology Group, one of the largest leading Chinese retailers, operating more than 1,000 outlets of hypermarkets, convenience stores, department stores and home improvement formats, generating annual sales of 50 billion yuan.

"The joint venture will uplift Wumei as a national retailer from its current position as mostly a regional player if excluding the group's home improvement formats," said Yu.

Zhang Feng, CEO of Dmall, the country's leading fresh grocery digital platform that has signed up 80 retailers across China and represented 12,000 stores, said: "By applying Dmall's cutting-edge and proven digital capabilities, we believe that we can help deliver a step change in the growth and efficiency of the business, and enhance customers' experience through online and offline digital solutions."

Metro China will be operated independently under its current local brand, which is Mai De Long in Chinese. Its headquarters will remain in Putuo, Shanghai.

The joint venture will maintain the current store footprint and all commercial operations while planned store openings will continue, according to Wumei.

Metro AG will appoint two members of the seven-seat board of directors of the joint venture's holding company, maintaining an ongoing role in its governance.

By leveraging the strengths of Wumei and Dmall, Metro China will benefit from synergies in sourcing and better access to local, ultra-fresh products, resulting in an enriched product offering, Wumei said.

By applying Dmall's proprietary operating system, Wumei will also invest further to increase Metro China's operating efficiency and enhance customers' shopping experience.

Wumei and Dmall will bring digital retail expertise that blends offline and online services and technologies, and will help Metro China improve its digital capabilities and accelerate its growth in China's expanding and dynamic consumer market, said Wumei.