Wumart Stores Inc. (1025), the Chinese supermarket operator, said it will buy 36 stores from CP Lotus Corp. (121) for HK$2.3 billion ($302 million) through a share swap to expand in Northern China. The stocks surged.
As part of the deal both companies will take minority stakes in each other, according to a Hong Kong stock exchange statement yesterday. CP Lotus, partly owned by a unit of Thai billionaire Dhanin Chearavanont’s Charoen Pokphand Group, will keep some outlets in China’s Guangdong and Hunan regions.
A slowing economy and rising competition are encouraging consolidation in China’s retail industry. CP Lotus, which gets all its revenue from the Asian nation, reported a loss of 392 million yuan ($64 million) last year, according to data compiled by Bloomberg.
“China’s existing retail market is very fragmented,” Xu Ying, Wumart executive director and president said at press conference. “We hope to expand into new geographical markets, increase efficiency and reduce costs with this strategic alliance with CP Group and CP Lotus.”
CP Lotus surged as much as 41 percent before trading 37 percent higher at 41 Hong Kong cents at 11:04 a.m. in Hong Kong trading today. Wumart rose as much as 4.9 percent.
The stocks were both halted from trading in Hong Kong yesterday.
The CP unit that owns the stores being sold also had net debt of 434 million yuan as of June 30, according to the statement. As part of the transaction, Wumart will gain a stake of about 10 percent in CP Lotus worth about HK$548 million, while CP Lotus will obtain about 14 percent of Wumart valued at HK$2.9 billion.
CP Lotus has 55 stores in China, with 36 in Beijing, Shanghai and other provinces. It has 19 stores in Guangdong and Hunan, according to the company. Beijing-based Wumart’s net income rose 2.7 percent to 602 million yuan last year. As of June 30 this year, it had a retail network of 541 stores, with 145 superstores and 396 mini-marts.
Wumart’s stock has gained 23 percent over the past year. It held a 1.8 percent share in China’s hypermarket industry in 2012 and Charoen Pokphand Group had 2.3 percent, according to Euromonitor International. The two companies compete with larger Wal-Mart Stores Inc., China Resources and Sun Art Retail Group Ltd. in the country.
Tesco, the largest U.K. retailer, said in October it will pay HK$4.33 billion ($558 million) to gain 20 percent of the venture with China Resources, which will hold 80 percent.
Charoen Pokphand Group is bidding for Hutchison Whampoa Ltd. (13)’s ParknShop supermarket chain, three people with knowledge of the matter said earlier this year.
Dhanin is buying at home and abroad with deals including CP Group’s purchase of a $9.4 billion stake in China’s Ping An Insurance (Group) Co. CP All Pcl, a Bangkok-based 7-Eleven operator controlled by the billionaire, recently struck a deal for the purchase of discount wholesaler Siam Makro Pcl.
Dhanin has a net worth of $6.5 billion, according to the Bloomberg Billionaires Index. Many of his assets are owned through closely held holding companies that he shares with his three brothers. Dhanin’s net worth calculation excludes the stakes held by his brothers, Jaran Chiaravanont, Montri Jiaravanont and Sumet Jiaravanon.
JPMorgan Chase & Co. is the sole financial adviser to Wumart on the planned acquisition and the proposed subscription by Wumart for a minority interest in CP Lotus.
Private equity firm Ascendent Capital will in a separate transaction subscribe for 16.6 million new Hong Kong listed shares in Wumart at HK$14 each and potentially up to an additional 16.6 million after completion of the CP Lotus transaction. The shares will have a lock-up period of six months for Ascendent Capital.
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