Hong Kong - Alibaba Group
Holding is leading a bid to take department store chain Intime Retail Group private
for as much as $2.6 billion, as China’s largest online retailer deepens its
integration with brick-and-mortar stores.
The deal to buy out Intime
adds to Alibaba’s burgeoning foothold in physical retail as it pursues
growth beyond a slowing online business. Control of Intime will also allow the
e-commerce giant to explore ways to modernize a $4.5 trillion
industry that hasn’t adapted well to the growing popularity of online
shopping.
Billionaire founder Jack
Ma’s goal is to try and up-end a splintered and bloated Chinese retail
landscape, stripping out layers of middlemen to reduce costs and improve
efficiency. Apart from Intime, Alibaba has partnered with electronics
chains Suning and Haier in deals that expanded its own online offerings
and sales and delivery network.
“This deal shows that there
is still value to brick-and-mortar stores, enough to interest e-commerce
players,” said Catherine Lim, a Singapore-based analyst at Bloomberg
Intelligence. “What it’s shown is that department store chains are still
relevant and of value. We could be seeing renewal of a sunset industry.”
Alibaba and Intime’s founder
Shen Guojun will pay HK$10 apiece for the Intime shares they don’t already own,
a deal that will require as much as HK$19.8 billion ($2.55 billion) including
stock options. That’s a 42 percent premium over Intime’s previous close. The
Hong Kong-listed company’s stock surged 35 percent upon resuming trade after a
two-week suspension Tuesday.
Alibaba, which will own
almost three-quarters of Intime, is paying a premium for a company that’s seen
revenue shrink since the second half of 2015. The offer values Intime at
about 18.7 times Ebitda of 1.39 billion yuan ($201 million) for the 12 months
ended June 2016, the latest period available, according to Bloomberg
calculations. That compares with the 7.2 times of $414.6 million in Ebitda
that Sycamore Partners paid for US department store chain Belk in 2015,
according to Bloomberg’s calculations.
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Department stores have
struggled in past years to cope as Chinese consumers frustrated with
lackluster, poorly managed shopping malls migrate to online bazaars. Unlike in
the US, which is dominated by a clutch of mega-chains, the Chinese retail
experience is far more fragmented and inconsistent. Intime, one of the
better-known players, operated and managed just 29 department stores and 17
shopping malls across the country as of end-June last year, mainly in eastern
Zhejiang province but also in Anhui and Beijing, according to the company’s
semi-annual report.
Profit warnings
Shenzhen-based Maoye
International Holdings and Hong Kong-based Lifestyle International Holdings,
which operates the upscale Jiuguang chain in China, both issued profit warnings
for the first half of 2016. Maoye’s bonds dropped to record lows after being
downgraded by ratings agencies. Intime’s shares had fallen 8 percent in
2016, compared with the 0.4 percent drop in the city’s benchmark Hang Seng
Index.
By teaming up with physical
retailers, Alibaba hopes to pioneer a new model of online and offline
retail. It sees an opportunity in helping Chinese retailers use
technology to transform inventory management, while securing a physical network
through which it can get goods to its own customers more efficiently, for
instance via letting customers pick up orders from physical stores. Ma has said
that he sees “tremendous challenges” for pure e-commerce operators as the
country’s economy slows.
“Alibaba will be able to do
more experiments with Intime in the retail sector,” said Ray Zhao, a
Shenzhen-based analyst at Guotai Junan Securities. “Intime’s valuation is
relatively low now so it would be a good time to buy.”
China’s largest online
retailer is also enlarging its global footprint, most notably by opening up its
Tmall platform to US and other foreign brands keen to sell to Chinese
consumers. Ma met with US President-elect Donald Trump on Monday to discuss how
the company could add US businesses to its platform. The Chinese e-commerce
giant said it could help create 1 million jobs by adding 1 million small and
medium-sized US businesses to its site.
But it’s in China where its
efforts have remained largely focused, and where it still gets the lion’s share
of its business. Alibaba originally took a stake in Intime in 2014 and Alibaba CEO
Daniel Zhang became Intime’s chairman the next year.
The privatisation of Intime
is Alibaba’s first deal for 2017, building on a string of acquisitions in
recent years. It announced 35 deals over the past 12 months with a total value
of $15.2 billion, according to data compiled by Bloomberg. Among its targets
were a number of physical retail chains, including Suning Commerce Group and
Haier Electronics Group. Alibaba owns about 27.8 percent of Intime and Shen
owned 9.17 percent of shares as of Tuesday, according to the filing.
“The most important
opportunity on the horizon is not growing online sales in isolation but rather
helping traditional retailers upgrade into a brand new retail model,” CEO Zhang
said in October.
BLOOMBERG