Gome Surges as Alibaba-Suning Deal Sparks Prospects for Tie-ups

Gome Electrical Appliances Holding Ltd. spiked 16 percent as Alibaba Group Holding Ltd.’s stake buy in a rival Chinese retailer gave hope the electronics chain may be viewed as a potential partner by other Internet companies.

E-commerce giant Alibaba said Monday it will spend 28.3 billion yuan ($4.6 billion) to buy a fifth of Suning Commerce Group Ltd. in its biggest deal ever. Beijing-based Gome rose as much as 16 percent to HK$1.61, the highest intraday level since July 3, and was up 3.6 percent as of 11:45 a.m. in Hong Kong. Suning shares jumped by the 10 percent limit in Shenzhen.

“Now people realize logistic resources and store chains are quite valuable from Alibaba and Suning’s cooperation,” said Xu Wen, an analyst with Ping An Securities Co Ltd., adding that this may prompt other online retail platforms such as JD.com Inc. to seek the similar cooperations with Gome.

Alibaba’s tie-up with Suning, owner of the second-most electronics outlets in China, will create logistics and online sales partnerships targeting deliveries as fast as two hours.

Feasible Model

Gome has also started a so-called “online-to-offline” or O2O model since last year, allowing customers to buy on its website and pick up their purchases from convenient locations, said Alfred Or, an analyst at Qilu International Holdings Ltd.

The Alibaba-Suning deal “proves the feasibility of the O2O model and the importance” of Gome’s strategy, said Or, adding however that Gome’s jailed founder Wong Kwong Yu is unlikely to want to reduce his stake in the retailer after recently attempting to boost his shareholding.

Wong, also known as Huang Guangyu, last month pulled off a deal to give himself majority control of Gome, with the retailer set to buy another company that he owns. That deal would boost Gome’s outlets by 50 percent to 1,714 in 436 cities, surpassing Suning’s 1,628 stores.

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