San Diego-based PriceSmart yesterday [Wednesday] announced a major investment by, and the entering of a joint venture agreement with, Grupo Gigante, one of Mexico's largest grocery and retail store chains.

PriceSmart and Gigante have agreed to invest initially up to a total of US$40m for the opening of Mexico's first four PriceSmart stores within the next 18 months, with two of the stores to open in time for the 2002 Christmas shopping season, and may invest additional funds as necessary for further expansion of the joint venture in the future. PriceSmart and Gigante will contribute US$20m each to the 50/50 venture. PriceSmart, through a management agreement, will run the day-to-day operations of the warehouses and the JV will benefit from the purchasing power that Gigante brings to the transaction with its US$3bn in annual sales.

Gil Partida, PriceSmart's President and CEO, commented: "We are very excited about the opportunity to work with Gigante to develop PriceSmart into a respected name in retail in Mexico.

"This is a remarkably good fit for us. It means more than just entering a very large and demographically ideal market with the assistance of an experienced and proven Mexican retailer. We are perhaps more excited about the opportunities inherent in our combined purchasing power, resulting in some quite significant savings to PriceSmart's members in our Mexico stores, and soon, in our stores outside of Mexico."

Gigante's CEO, Roberto Salvo, echoed the enthusiasm: "This is a joint venture where the whole will be greater than the sum of the parts.

"After having studied PriceSmart's impressive successes in Central America and the Caribbean during the last two years, we knew it was a natural fit for us and for Mexico. Large warehouse clubs have performed very well in Mexico. PriceSmart's smaller store format is even better suited for the needs of our country. It will allow us to reach all corners of Mexico and give a far greater number of Mexicans the opportunity to take advantage of a great idea."

Gigante has agreed to invest US$15m for a newly issued series of PriceSmart convertible redeemable preferred stock with a stated amount of US$15m and a warrant to purchase 200,000 shares of PriceSmart common stock at an exercise price of US$37.50 per share. The preferred stock will be convertible into shares of PriceSmart common stock at a conversion price of US$37.50, will require dividend payments at a rate of 8% per year, and will be redeemable at PriceSmart's option five years after issuance.

Other entities related to Sol Price have agreed to purchase US$5m of the new series of preferred stock, under similar terms and conditions as Gigante, and entities related to Sol Price and Robert Price have granted Gigante a one-year right of first refusal to purchase shares of PriceSmart capital stock held by them. Sol and Robert Price beneficially own approximately 38% of PriceSmart's common stock through various entities.

PriceSmart now operates 24 warehouse clubs in 11 countries in Central America, the Caribbean and Asia (four in Panama; three each in Costa Rica, Dominican Republic, and Guatemala; two each in El Salvador, Honduras, the Philippines, and Trinidad; and one each in Aruba, Barbados, and the United States Virgin Islands). PriceSmart also licenses nine warehouses in China and one in Saipan, Micronesia. The Company is currently on track to meet its fiscal 2002 revenue goal of US$650m.