The Chinese retail giant, Wumart Stores Inc, announced yesterday
it is to take over its minor competitor, the Beijing MerryMart
Chainstore Development Co Ltd, in a 373.5 million yuan (US$46
million) move, amid fierce competition in the Chinese retailing
market.
Wumart, the 10th largest chain store operator in China and the
largest retailing chain operator in Beijing, signed the acquisition
deal with MerryMart's stakeholders on Wednesday, giving it 75 per
cent of its Beijing rival.
The top Beijing retail chain operator will pay 253.5 million
yuan (US$31 million) to acquire MerryMart's 68 per cent of
MerryMart and contribute another 120 million yuan (US$15 million)
to increase the capital scale of MerryMart, which will allow Wumart
to control 75 per cent, when the deal is completed.
Wumart's stock on the Growth Enterprise Market in Hong Kong rose
by almost 18 per cent yesterday to HK$20.05 (US$2.64), as news of
the deal spread.
MerryMart is the fourth largest retailing chain in Beijing and
operates 23 stores in the Chinese capital. Its un-audited revenues
for 2005 were 1.65 billion yuan (US$205 million) with profits of
33.46 million yuan (US$4 million), compared with the figures of 1
billion yuan (US$124 million) and 13.73 million yuan (US$1.7
million) in 2004.
Zhu Younong, president of MerryMart, said that a shortage of
capital for fast expansion is the main reason why he and his
partners decided to sell the firm to Wumart.
Wumart was more upbeat on its website yesterday, saying that:
"The combination of Wumart and MerryMart will further change the
landscape of the retail market in Beijing and set an example for
the domestic retail industry to increase its competitiveness
through expansion and consolidation."
The company added that foreign retailing giants account for 70
per cent of the total sales of all the largest supermarkets in
Shanghai, and are gaining pace in Beijing.
However, there are more than 40 domestic chain stores in the
Chinese capital and most of them are very weak, so domestic players
will need to unite to compete.
According to a report by the China Chain Store and Franchise
Association on the first three quarters of the retail chain,
foreign operators started looking to change their joint ventures to
wholly-owned businesses to increase control.
The French giant Carrefour, the biggest foreign player in China,
plans to open 20 stores in the country this year, after
establishing 14 in 2005.
One major benefit for Wumart from the acquisition is an increase
in economies of scale. With the 23 stores from MerryMart, Wumart
will have almost 100 stores in Beijing and its coverage in the
Xuanwu and Fangshan districts, where it was weak, will be greatly
enhanced.
Wumart will also have bigger bargaining power in procurement
after the acquisition. The combined purchasing power of the two
companies is more than 10 billion yuan (US$1.24 billion), and
Wumart claims it will become the biggest fast-consumption goods and
wholesales channel in Beijing.
(China Daily February 3, 2006)