Gome Electrical Appliances Holding Ltd, China's biggest home appliance retailer, has closed a deal to acquire its rival China Paradise Electronics Retail Ltd. according to the Shanghai Morning Post.

The cash and share swap offer tabled by Gome has been accepted by the Paradise management and the value of the deal is more than HK$4.94 billion (US$618 million), an unnamed source told the newspaper.

Gome reportedly offered one share and an additional cash amount for every three shares in China Paradise.

The nation's third-biggest player in the sector China Paradise will 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 which is more than one-tenth of the market. 

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 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 to proceed. Gome then sweetened its offer by adding a cash element but this detailed sum has not been revealed.

Analysts say Gome would be able to expand its presence in affluent areas 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 will also give Gome a network edge which may take its competitors several years to catch up with and that includes 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 it would be moving its headquarters to Shanghai soon to help its expansion in the economic hub of the nation.

And Suning will also expand across the country to achieve economy of scale. It aims to open 1,500 outlets in five years as well as strengthening 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 opening its first mainland store in Shanghai last month.

(China Daily July 25, 2006)