Published: Tue, November 21, 2017
Global | By Shelia Dennis

Alibaba Makes $2.9 Billion Investment in Sun Art

Alibaba Makes $2.9 Billion Investment in Sun Art

Alibaba Group Holding said on Monday it would invest HK$22.4 billion ($2.86 billion, €2.43 billion) in buying a major stake in China's top hypermart operator, Sun Art Retail Group. As part of the deal, France's Auchan Retail SA will raise its stake in the Hong Kong-listed company to a similar level, and form an alliance with the internet giant to tackle the same Chinese food retail sector Wal-Mart's targeting. The end result will see Alibaba with 36.16%, Auchan with 36.18% and Ruentex with 4.67% stakes in Sun Art.

The deal will give Sun Art access to Alibaba's digital ecosystem, providing new digitised retail solutions including online and offline integration, fulfilment and customer experiences.

Sun Art is a multi-format offline food retailer in China.

Its decelerating growth and narrowing margins may be why Alibaba's getting into Sun Art for about HKD6.50 a share versus its last traded price of HKD8.60 before shares were suspended November 13. 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 is exerting more efforts to secure offline, rural, and overseas customers as China's urban electronic commerce market shows indications of steeping, including buying extensive infrastructure which it had formerly avoided.

Herbert Smith Freehills represented Sun Art, one of the main hypermarket operators in China with 14.6 per cent market share by retail sales value.

Jack Ma's group has already invested almost $10 billion in the brick and mortar retail space, and one of its key motivations is the fact that the e-commerce market in urban China is slowly approaching saturation. It will not only reshape the retail landscape but also help them fend off competition, if they could manage a first mover advantage.

"Alibaba and Sun Art are forming a strong alliance: China's dominant e-commerce giant and its best hypermarket operator", Veronica Wang, an associate partner with OC&C Strategy Consultants, told Bloomberg.

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The Sun Art Group is a major offline retail player in China.

"Physical stores serve an indispensable role during the consumer journey, and should be enhanced through data-driven technology and personalised services in the digital economy".

In January, Alibaba bought the remainder of InTime and took the business private, while during May it bought a share of Lianhua the supermarket brand.

"By fully integrating online and physical channels together with our partners, we look forward to delivering an original and delightful shopping experience to Chinese consumers", he added.

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