Alibaba takes $2.9 billion stake in food retailer

Alibaba buys 36.2 per cent stake in Wal-Mart style hypermarket chain for US$2.9 billion

The company announced on Monday it spent more than HK$22.4 billion equal to about $2.88 billion for a stake of 36.16% in Hong Kong listed Sun Art Retail Group that operators over 446 hypermarkets in 224 cities on mainland China.

Taobao China Holding, a subsidiary of Alibaba, has agreed to buy a direct 26 per cent stake from Kofu and Concord Greater China for HK$16.1 billion, at HK$6.5 a share, while it will also buy a 19.9 per cent stake in Auchan Retail, which owns 51 per cent of Sun Art, for HK$6.3 billion, also at HK$6.5 per share, according to an exchange filing by Sun Art.

Alibaba's essentially using Sun Art to quicken an assault on the $4 trillion brick-and-mortar retail arena, escalating competition with Wal-Mart in the hypermarts that hawk everything from fresh produce to electronics. According to the company, the group aims at merging both online and offline shopping and its latest stake in Sun Art Retail is a step towards that direction.

When Sun Art launched its IPO in Hong Kong in 2011, it was advised by Freshfields Bruckhaus Deringer, while underwriters were represented by HSF.

However, shares in Sun Art Retail took a dive by almost 13.6% in Hong Kong trading on the morning of November 20. Year-to-date, BABA has gained 110.83%, versus a 17.00% rise in the benchmark S&P 500 index during the same period.

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Alibaba purchased a 35 percent portion of department store operator In Time in 2014 and then devoured up 20 percent of retail behemoth sunning for $4.6 billion in 2015, but it foot the pedal on the gas in 2017.

In addition to combining the resources of the three companies, the new alliance will enable Sun Art to benefit from Alibaba's digital ecosystem. "Alibaba is excited to join with our new partners to redefine traditional retail through digital transformation", Daniel Zhang, its chief executive, said in the statement.

The over-arching idea is to connect virtual and offline worlds, boosting online orders while amassing valuable customer purchasing data.

Shares of Sun Art Retail were 0.9% lower at HK$8.52 in late-morning trading in Hong Kong on Monday as trading resumed after being suspended on November 13, pending the announcement. Yet Alibaba's expertise may provide the necessary wherewithal to shore up its operations for the longer term. Auchan Retail will continue to consolidate Sun Art in its financials following the transaction.

"Strategically it's a good deal for Sun Art", Chan said. "The massive customer data is expected to give Sun Art a better understanding about customers and more experience to do business digitally".

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