Finance

Alibaba buys 36% stake in hypermarket operator Sun Art Retail

Alibaba buys 36% stake in hypermarket operator Sun Art Retail

Alibaba acquired the stake in Sun Art Retail at HK$6.50 per share - a sharp discount to the target company's current share price - and said it will separately make a "possible" mandatory cash offer for Sun Art Retail shares at the same price. The acquisition will see Taobao become the second largest shareholder in Sun Art after Auchan (36.18%) while Reuntex will have a 4.67% stake.

Daniel Zhang, chief executive officer of Alibaba Group, said the alliance aims to "redefine traditional retail through digital transformation". Food retail in China is a $500 billion industry, and the Chinese technology and online retail major clearly wants to move in on it sooner rather than later.

The offer price represents a 24% discount to Sun Art Retail's last closing price of HK$8.60 before trading was halted on November 13., according to the statement filed to the Hong Kong Stock Exchange.

When the transactions are completed, Auchan will own 36.18 percent of Sun Art Retail, while Alibaba will hold 36.16 percent and Ruentex 4.67 percent.

Earlier this year, Alibaba spent $2.6 billion to snap up Intime Retail, which operates 29 department stores and 17 shopping malls in China.

"Bringing together the leaders of in-store retail and of online retail will allow us to serve hundreds of millions of Chinese consumers a fully integrated, world-class shopping experience", said Wilhelm Hubner, chief executive of Auchan Retail, which will slightly raise its stake in Sun Art as part of the deal.

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The firm is taking more risks to secure offline, rural and overseas buyers as China's urban e-commerce market shows signs of saturating, including purchasing extensive infrastructure which it had previously avoided.

"They're getting into a territory that's not their core strength. for example securing a property, the licences to sell certain products, paying tax, more labor and so on", said Weiwen Han, managing partner for Greater China at Bain & Company.

"On one hand, they really need to do it, but on the other hand, they are facing a lot of challenges that they have never experienced before". Sun Art also operates superstores and innovative unmanned stores under the "Auchan Minute" brand.

But the grocer has been slow to go online, with its platform Feiniu lagging bigger players like China Resources and Wal-Mart Stores.

Alibaba said it will work closely with its new retail partners to provide Chinese consumers with a new food shopping experience that seamlessly merges online and offline experience for customers.


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