Metro Group said today (30 May) the sale of its Makro arm in the UK to local wholesaler Booker will make the loss-making business stronger.

The German retail giant has sold its Makro business in a cash-and-share deal that values the unit at GBP139.7m.

The sale, which remains subject to the approval of Booker shareholders, would see Metro exit what has become a challenging market for the world's fourth-largest retailer.

According to figures released today by Booker, Makro UK ran up a pre-tax loss of GBP63.2m in 2011, over five times the losses it incurred in 2010. Sales fell 6.3% last year to GBP116.9m.

Speculation has swirled over the last couple of years that Metro has been looking to sell the business. Last June, Metro replaced four senior directors at Makro UK with consultants amid differences over the wholesaler's strategy. A month later, Metro executive Juergen Schwarze, who the German firm dubbed a "restructuring specialist" became MD of the business.

Speaking to just-food today, a spokesperson for Metro insisted changes at Makro UK had borne fruit. However, he said the retailer had decided a deal with Booker would strengthen the business and allow it to focus on its other markets in Europe.

"We had some challenges in the past few years but we took some actions to restructure the business, which had some positive results but, in the end, we think the business can be more successful within Booker," the spokesperson said. "It was a chance to build a combined business that is successful in the future and gives us the chance to give us more time to focus on on the eight core countries for Metro Cash and Carry."

Booker chief executive Charles Wilson admitted Makro's recent results were "not pretty". Speaking to just-food, he argued Makro had suffered from increased competition from other wholesalers and UK multiples, as well as challenges in certain parts of the retail industry.

"We've seen people like Costco growing. Costco came into the market in 1991 and they've opened alongside a few of the Makros. Then you've seen as Tesco and Asda have broadened their ranges, some of the old Makro customers have said: 'Look, it's easier just to go into one of the big hypermarkets.' With the Internet, you had the challenge of the electricals market, which used to be a real strength of Makro, you've seen them being picked off," Wilson said. "There's a number of people who've been taking bits of that business."

Wilson said the changes recently made by Metro had improved Makro but said the business "could still do better".

He said: "Credit to Juergen Schwarze, credit to the team at Makro, the business is looking better than it's looked for a while but they know it can still do better, too. If we can give the customers the choice, the price and the service they want, both the Booker and Makro customers will be better off as we go on this journey. The business has had some real challenges and we're looking forward to doing a particularly better job for the professional customers."

The deal between Booker and Metro will see the UK firm pay a mix of cash and shares for Makro UK. Booker will pay GBP15.8m in cash and will sell just under 10% of its business to Metro.

Booker and Metro have also agreed to form a "strategic partnership agreement" to "facilitate competence sharing", which will include areas including supply chain management, marketing and own label.

The two companies also operate stores in India but Wilson said the agreement did not include plans to work together in that market.

"India hasn't been included. We've got a business in India, they've got a good business in India but it wouldn't surprise me if at some point if we sat down with the team over there to see if there opportunities on collaborative or helping building supply chains," Wilson said. "The cost of building supply chains isn't cheap. In India they tend to focus on different customers. We're much more focused on the kirana shop. That's where there could be opportunities to co-operate and collaborate as well."