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)