Alibaba Takes Big Step Offline With $2.6 Billion Intime DealBloomberg News
Alibaba prices Intime at HK$10 per share in take-private deal
Deal expands e-commerce giant’s growing physical footprint
Alibaba Group Holding Ltd. is leading a bid to take department store chain Intime Retail Group Co. private for as much as $2.6 billion, as China’s largest online retailer deepens its integration with brick-and-mortar stores.
The deal to buy out Intime adds to Alibaba’s burgeoning foothold in physical retail as it pursues growth beyond a slowing online business. Control of Intime will also allow the e-commerce giant to explore ways to modernize a $4.5 trillion industry that hasn’t adapted well to the growing popularity of online shopping.
Billionaire founder Jack Ma’s goal is to try and up-end a splintered and bloated Chinese retail landscape, stripping out layers of middlemen to reduce costs and improve efficiency. Apart from Intime, Alibaba has partnered with electronics chains Suning and Haier in deals that expanded its own online offerings and sales and delivery network.
“This deal shows that there is still value to brick-and-mortar stores, enough to interest e-commerce players,” said Catherine Lim, a Singapore-based analyst at Bloomberg Intelligence. “What it’s shown is that department store chains are still relevant and of value. We could be seeing renewal of a sunset industry.”
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Alibaba and Intime’s founder Shen Guojun will pay HK$10 apiece for the Intime shares they don’t already own, a deal that will require as much as HK$19.8 billion ($2.55 billion) including stock options. That’s a 42 percent premium over Intime’s previous close. The Hong Kong-listed company’s stock surged 35 percent upon resuming trade after a two-week suspension Tuesday.
Alibaba, which will own almost three-quarters of Intime, is paying a premium for a company that’s seen revenue shrink since the second half of 2015. The offer values Intime at about 18.7 times Ebitda of 1.39 billion yuan ($201 million) for the 12 months ended June 2016, the latest period available, according to Bloomberg calculations. That compares with the 7.2 times of $414.6 million in Ebitda that Sycamore Partners paid for U.S. department store chain Belk Inc. in 2015, according to Bloomberg’s calculations.
Department stores have struggled in past years to cope as Chinese consumers frustrated with lackluster, poorly managed shopping malls migrate to online bazaars. Unlike in the U.S., which is dominated by a clutch of mega-chains, the Chinese retail experience is far more fragmented and inconsistent. Intime, one of the better-known players, operated and managed just 29 department stores and 17 shopping malls across the country as of end-June last year, mainly in eastern Zhejiang province but also in Anhui and Beijing, according to the company’s semi-annual report.
Shenzhen-based Maoye International Holdings Ltd and Hong Kong-based Lifestyle International Holdings Ltd, which operates the upscale Jiuguang chain in China, both issued profit warnings for the first half of 2016. Maoye’s bonds dropped to record lows after being downgraded by ratings agencies. Intime’s shares had fallen 8 percent in 2016, compared with the 0.4 percent drop in the city’s benchmark Hang Seng Index.
By teaming up with physical retailers, Alibaba hopes to pioneer a new model of online and offline retail. It sees an opportunity in helping Chinese retailers use technology to transform inventory management, while securing a physical network through which it can get goods to its own customers more efficiently, for instance via letting customers pick up orders from physical stores. Ma has said that he sees “tremendous challenges” for pure e-commerce operators as the country’s economy slows.
“Alibaba will be able to do more experiments with Intime in the retail sector,” said Ray Zhao, a Shenzhen-based analyst at Guotai Junan Securities Co. “Intime’s valuation is relatively low now so it would be a good time to buy.”
China’s largest online retailer is also enlarging its global footprint, most notably by opening up its Tmall platform to U.S. and other foreign brands keen to sell to Chinese consumers. Ma met with U.S. President-elect Donald Trump on Monday to discuss how the company could add U.S. businesses to its platform. The Chinese e-commerce giant said it could help create 1 million jobs by adding 1 million small and medium-sized U.S. businesses to its site.
But it’s in China where its efforts have remained largely focused, and where it still gets the lion’s share of its business. Alibaba originally took a stake in Intime in 2014 and Alibaba Chief Executive Officer Daniel Zhang became Intime’s chairman the next year.
The privatization of Intime is Alibaba’s first deal for 2017, building on a string of acquisitions in recent years. It announced 35 deals over the past 12 months with a total value of $15.2 billion, according to data compiled by Bloomberg. Among its targets were a number of physical retail chains, including Suning Commerce Group Co. and Haier Electronics Group. Alibaba owns about 27.8 percent of Intime and Shen owned 9.17 percent of shares as of Tuesday, according to the filing.
“The most important opportunity on the horizon is not growing online sales in isolation but rather helping traditional retailers upgrade into a brand new retail model,” CEO Zhang said in October.
— With assistance by Rachel Chang, and Lulu Yilun Chen