Thai group’s China supermarket deal collapses; Scrapping of CP Lotus’s sale to Wumart highlights sector woes

December 16, 2013 4:42 am

Thai group’s China supermarket deal collapses

By Michael Peel in Bangkok and Jamil Anderlini in Beijing

Thai conglomerate CP Group’s $300m planned sale of Chinese supermarkets to Wumart has collapsed, the latest casualty of turning sentiment in China’s powerhouse retail sector.Chinese retailers have been dragged down by the country’s slowing economy, and several international players have been exiting or cutting their exposure, including Tesco of the UK.

The failure of CP’s all-share deal, announced in October and which would have seen it sell 36 supermarkets, also torpedoes a plan by the two companies to take stakes in each other’s businesses and boost their Asian regional expansion.

Shares in CP Lotus fell 4.3 per cent yesterday while those of Chinese supermarket operator Wumart fell 0.2 per cent in Hong Kong, reflecting dashed hopes of a tie-up that was seen as an example of needed money-saving consolidation in China’s increasingly competitive retail market..

The scrapping of the link-up is also a blow to Dhanin Chearavanont, the acquisitive Thai billionaire whose CP Group part-owns CP Lotus.

In short, separate statements on Monday both Wumart and CP Lotus said they had been unable to agree terms on a deal under which CP would have sold the stores in Beijing, Shanghai and other parts of China. Neither suggested there were any talks to revive the agreement, which would have given Wumart a precious foothold in northern China to add to its more than 500 stores elsewhere in the country.

Under the deal Wumart would have acquired about 10 per cent of CP Lotus, while the Thai group would have taken a 14 per cent stake in its Chinese counterpart.

A recent succession of international supermarket chains have exited China or reduced their presence there in the face of heavy losses.

In October, Tesco struck a deal with state-owned China Resources Enterprises that effectively handed most of Tesco’s lossmaking China operations to the Chinese company.

CP Lotus has been in the red in China for years, including a loss of Rmb392m ($65m) last year. It has already cut its number of stores in the country from 75 to 55.

Supermarket chains and traditional retailers in China are under pressure from intense competition, concerns over food safety and rampant counterfeiting. They also face a growing challenge from internet retailers, with China expected next year to overtake the US as the world’s biggest ecommerce market.

The proposed CP Lotus-Wumart deal was one of a flurry done by Thailand’s Mr Dhanin, who is a high-profile example of how the country’s leading business people are expanding their empires through both domestic and international mergers and acquisitions.

CP Group this year bought a stake in China’s Ping An Insurance for $9.4bn, while Mr Dhanin’s convenience store chain CP All – which operates 7-Eleven stores in Thailand – has also done a deal to buy Siam Makro, the Thai cash-and-carry retailer.

Wumart Falls to 4-Year Low After CP Deal Ends: Hong Kong Mover

Wumart Stores Inc. (1025), the Chinese supermarket operator, said plans to buy stores from CP Lotus Corp. (121) won’t proceed, two months after both companies announced the deal. Their shares tumbled.

“Despite extensive negotiations in good faith, CP Lotus and Wumart were not able to make sufficient progress in reaching agreement on certain key terms for the proposed transactions,” CP Lotus said today. “The proposed subscriptions and the proposed acquisition will not proceed.”

Wumart fell as much as 7.7 percent to HK$10.10 in Hong Kong trading, headed for the lowest close since July 2009. CP Lotus dropped as much as 5.2 percent, headed for the lowest level since July this year. The city’s benchmark Hang Seng Index fell 0.4 percent as of 10:10 a.m.

Phone calls to Gaby Yau, a spokeswoman at CP Lotus, weren’t answered. Shirley Lo, from a public relations firm hired by Wumart, declined to immediately comment.

Beijing-based Wumart was to buy 36 stores from CP Lotus, partly owned by a unit of Thai billionaire Dhanin Chearavanont’s Charoen Pokphand Group, for HK$2.3 billion ($297 million) through a share swap, to expand in northern China while CP Lotus was to keep some outlets in China’s Guangdong and Hunan regions, both parties announced in October.

The CP unit that owns the stores that were to be sold had net debt of 434 million yuan as of June 30. As part of the October deal, Wumart would have gained a stake of about 10 percent in CP Lotus worth about HK$548 million, while CP Lotus would have obtained about 14 percent of Wumart valued at HK$2.9 billion.

CP Lotus has 55 stores in China including 19 outlets in Guangdong and Hunan, according to the company.

Wumart’s net income rose 2.7 percent to 602 million yuan last year. As of June 30 this year, it had a retail network of 541 stores, with 145 superstores and 396 mini-marts.

“The company would wish to emphasize that it has taken into account the best interests of its shareholders,” Wumart said in a separate Hong Kong exchange statement today.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net