British retailer Tesco has clinched an exit deal with Japan’s retail group Aeon.

Tesco will exit Japan in a two stage process. In the first, Tesco will sell 50 per cent of its shares in Tesco Japan to Aeon for a nominal sum. This will result in the formation of a joint venture with Aeon. 

As part of this, Tesco will invest a further £40 million (US$63 million) as a joint venture partner to finance further restructuring, after which Tesco will have no further financial exposure to the Japanese business or its operations. Completion of the transaction is subject to usual regulatory approval.

Tesco CEO Philip Clarke said: “We are confident that this will deliver the best outcome for our staff, for our customers in Japan and for our shareholders.”

Since its entry in Japan in 2003, Tesco has built a network of 117 stores under the names Tesco, Tesco Express and Tsurukame. The British retailer announced it would pull out of Japan 10 months ago to focus more on other business operations in Asia.

Tesco’s Japan exit is not the first time it pulled out of Asian country. In 2006, the retailer also exited Taiwan market in an asset swap deal with French retailer Carrefour involving stores and operations in the Czech Republic and Slovakia.

Analysts find Tesco’s decision of exiting Japan understandable in the current economic climate.  Kantar Retail’s Bryan Roberts said: “Without some serious merger and acquisition, they were never going to reach the scale required to create a profitable business in what remains one of the most competitive markets on earth. It makes sense to pull out and this seems a dignified way of doing it.”

GB