China's biggest home appliance retailer, Gome Electrical
Appliances Holding Ltd, has clinched a deal to acquire its rival
China Paradise Electronics Retail Ltd, according to the
Shanghai Morning Post.
Gome's cash and share swap offer has been accepted by China
Paradise's management and the value of the deal will be more than
HK$4.94 billion (US$618 million), an unnamed source told the
newspaper.
Gome is reported to have offered one share and an additional
cash amount for every three shares in China Paradise.
China Paradise, the nation's third-biggest player in the sector,
would maintain its Yolo brand after the acquisition, while its
merger agreement with Beijing Dazhong Electrical Appliances, the
fifth-largest player in the sector, remains effective.
Officials from the two companies declined to comment, but both
confirmed a press conference concerning the issue would be held
today.
The deal between Gome and China Paradise is expected to create a
chain worth 80 billion yuan (US$10 billion) in sales revenue
annually and more than one-tenth of the market share.
Gome originally offered one new share for every three shares in
China Paradise, which would only have given a 3.3 percent premium
for the latter, according to the last traded prices of the two
companies.
China Paradise's shares were suspended from trading last Monday
at HK$2.05 (26 US cents) per share. Trading in Gome stock was
halted on Tuesday at HK$6.35 (81 US cents).
Based on the last traded prices of the two companies, the deal
would value China Paradise at HK$4.94 billion (US$630 million)
before adding in the cash element.
It was reported the proposal was rejected by China Paradise as
the Shanghai-based company asked HK$9.8 billion (US$1.26 billion)
for the deal. Gome then sweetened its offer by adding a cash
element, but the detailed sum was not revealed.
Analysts say Gome would be able to expand its presence in the
affluent area around Shanghai after the acquisition. Shanghai-based
China Paradise has over 60 percent of the city's market, according
to a report by UBS Securities Asia Ltd.
The alliance would also lend Gome a network edge that may take
its competitors several years to catch up to, including foreign
players with much deeper pockets.
Suning, China's No 2 home appliance retailer, has some 350
outlets, with annual sales of over 30 billion yuan (US$3.75
billion).
The Nanjing-based company announced over the weekend that it
would move its headquarters to Shanghai soon to help its expansion
in the economic hub of the nation.
In the meantime, Suning will also expand across the country to
achieve an economy of scale. It aims to open 1,500 outlets in five
years, as well as strengthen its human resources, logistics and
customer services.
Best Buy, the biggest consumer electronics chain in the United
States, spent US$180 million to acquire Jiangsu Five Star Appliance
in May. And it opened its first mainland store in Shanghai last
month.
(China Daily July 25, 2006)