UPDATE 3-Wal-Mart to buy Chinese chain for $1 bln -source http://today.reuters.com/news/articleinvesting.aspx?type=companyNews&storyid=123657+17-Oct-2006+RTRS&WTmodLoc=BizArt-L1-CompanyNews-2
Tue Oct 17, 2006
(Adds quotes, details)
By Tony Munroe and Jerker Hellstrom
HONG KONG/SHANGHAI, Oct 17 (Reuters) - Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research) has agreed to buy a Chinese hypermarket chain for about $1 billion to become the top foreign player in China's fragmented retail market, a source familiar with the situation said on Tuesday.
If approved by Chinese regulators, the deal to buy Trust-Mart, a closely held Taiwan company with 100 supercentres in China, would push Wal-Mart past Carrefour SA (CARR.PA: Quote, Profile, Research) for the most supercentres in China, Asia's second-biggest retail market.
Spokespeople with Wal-Mart, the world's largest retailer, and Trust-Mart declined to comment on Tuesday.
Supercentres, also known as hypermarkets, are giant stores that sell a wide range of general food and merchandise. Wal-Mart beat Carrefour out in bidding for the Trust-Mart stores, the Wall Street Journal reported on Monday, citing sources.
Trust-Mart posted 2005 sales of about 13.2 billion yuan ($1.67 billion) at its Chinese hypermarkets, according to the China Chain Store and Franchise Association, well above Wal-Mart's 9.9 billion yuan in its Chinese stores. By comparison, Carrefour had 2005 sales of 17.4 billion yuan at its Chinese hypermarkets while Germany's Metro (MEOG.DE: Quote, Profile, Research) recorded sales of 7.5 billion yuan, the data showed.
But China's retail market -- worth about $500 billion according to research firm Euromonitor -- is still dominated by Chinese chains, analysts said, with the foreigners lagging far behind industry leader Bailian Group Co. Ltd., which was created in 2003 through a merger of four major retail firms.
"When Wal-Mart expands, supposedly they are going to enjoy better economies of scale," said retail analyst Selina Sia with UBS in Hong Kong.
"The market is still highly fragmented. None of the chains have a dominant power to take leadership, but there are more domestic firms than foreign ones."
The top 100 retailers in China account for only 10 percent of the sector, accounting firm Ernst & Young said in a recent report.
INTERNATIONAL EXPANSION
Established in 1997, Trust-Mart employs more than 30,000 people at its hypermarkets in more than 20 provinces across China, and says it offers nearly 20,000 different products.
"Acquisition is the game. If you can buy 'x' number of stores in one scoop ... then you have increased size to help you cut down on the cost of supply. It's just the right thing to do," said Jack Huang, chair of the Greater China Practice of international law firm Jones Day, who closely tracks M&A trends in China.
"This acquisition will also open the door for more to be done by Wal-Mart, by Carrefour and their other competition," he said.
International expansion has become increasingly important for Wal-Mart as its U.S. sales growth slows. Its U.S. discount stores posted 7.9 percent sales growth for September, while the international business turned in a strong 32 percent gain.
Wal-Mart's international operations have endured some high-profile setbacks this year, however, as the retailer pulled out of South Korea and Germany.
The retail giant said in July it was selling its underperforming German stores to Metro, the country's leading retail chain, just after it in May announced the divestment of its loss-making South Korean stores to Shinsegae Co. Ltd. (004170.KS: Quote, Profile, Research).
Wal-Mart has made no secret of its ambitions in China. The retailer has said that its operations there could be as big as its U.S. business in 20 years. Wal-Mart currently has more than 3,700 U.S. stores, but only about 60 in China.
By comparison, Carrefour had 78 stores in 2005 while Metro has 27 outlets, the China chain store association's data showed.
In March, Wal-Mart said it planned to hire some 150,000 people in China over the next five years -- five times the number it currently employs -- as it prepares for a major store expansion.
Shares of Wal-Mart closed on Monday down 14 cents, or 0.29 percent, at $48.32. Carrefour shares opened slightly lower on Tuesday, edging down 0.5 percent to 49.80 euros at GMT 0710, versus a 0.23 percent decline in the DJ Stoxx European Retail Index <.SXRP>. ($1=7.91 yuan) (Additional reporting by Emily Kaiser & Brad Dorfman in Chicago and Richard Dobson in Taipei)
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