(MENAFN - AFP) Britain's biggest retailer Tesco has agreed to form a venture with China Resources Enterprise, but first-half profits fell by a third amid "challenging" conditions in Europe, it said on Wednesday.
The deal in China would create a market leader, Tesco said.
"Tesco and CRE today announce that they have entered into definitive agreements to combine their Chinese retail operations to form the leading multi-format retailer in China," a statement said.
The companies had revealed in August that they were in exclusive talks over a deal.
London-listed Tesco -- the world's third-biggest supermarket group after US retailer Wal-Mart and number two Carrefour of France -- added that the move was part of its international strategy to tap further into fast-growing economies.
Under the deal, Hong Kong-listed China Resources Enterprise (CRE) will have a stake of 80 percent and Tesco will have 20 percent, but this can rise to 25 percent after five years.
''We are delighted to work with CRE to create the leading Chinese retail business," said Tesco chief executive Philip Clarke in the statement.
"Through this deal we have a strong platform in one of the world's most exciting markets and it will move us more quickly to profitability in China.
"This is very good news for customers and shareholders and a further demonstration of our commitment to build sustainable, profitable businesses, establish multichannel leadership in all of our markets and pursue disciplined international growth.''
The new venture will combines Tesco's 134 Chinese branches, as well as its Chinese shopping mall business with the China Resources Vanguard business of 2,986 outlets.
Tesco will make a cash contribution of 185 million to the venture. It will also pay 80 million to CRE following completion, and another 80 million on the first anniversary.
The deal is expected to be completed in the first half of 2014 but remains subject to regulatory and CRE shareholder approvals.
The British supermarket chain also revealed on Wednesday that profits after taxation dived 33.6 percent to 820 million (1.3 billion, 981 million euros) in the first half of its financial year, or 26 weeks to August 24.
That compared with net profits of 1.235 billion in the same period of the company's previous 2011/2012 fiscal year.
"The challenging retail environment in Europe has continued to affect the performance and profitability of our businesses there," added Clarke in the earnings release.
"The investments we have made to improve our offer for customers in the region are already starting to take effect and we expect a stronger second half as a resul