HONG KONG (BLOOMBERG) - Alibaba Group Holding is leading a bid to take department store chain Intime Retail Group private for as much as HK$19.8 billion (S$3.66 billion), as China's largest online retailer deepens its integration with brick-and-mortar stores.
The deal strengthens Alibaba's burgeoning foothold in physical retail as it seeks growth beyond a slowing online business. Control of Intime will also allow the e-commerce giant to explore ways to modernize a US$4.5 trillion industry that hasn't adapted well to online shopping.
Alibaba and Intime's founder Shen Guojun will pay HK$10 apiece for the Intime shares they don't already own, according to a statement to the Hong Kong stock exchange. The offer represents a 42 per cent premium over the last closing price, and the maximum amount of cash required, including options, is about HK$19.8 billion. Intime's stock surged 35 per cent upon resuming trade on Tuesday (Jan 10).
"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 Co. "Intime's valuation is relatively low now so it would be a good time to buy."
Alibaba and Intime have been building their relationship for years. Alibaba originally took a stake in the retailer in 2014 and Alibaba chief executive officer Daniel Zhang became Intime's chairman the next year. The partnership already gives Alibaba access to Intime's inventory and allows its online customers to pick up orders from physical stores. Privatization will allow Intime to work more closely on integrating online and offline shopping with a separate group of shareholders.
Intime operated and managed 29 department stores and 17 shopping malls throughout China 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. Its shares, which were halted since Dec. 28 pending an announcement, had fallen 8 per cent in 2016, compared with the 0.4 per cent drop in the city's benchmark Hang Seng Index. Alibaba gained 8.1 per cent last year in New York.
Alibaba is one of China's most aggressive deal-makers. It announced 35 deals over the past 12 months with a total value of US$15.2 billion, according to data compiled by Bloomberg.
It's bought or invested in a number of physical retail chains, including Suning Commerce Group Co, and Haier Electronics Group, as it tries to revamp the country's US$4.5 trillion traditional retail industry. Founder and billionaire Jack Ma's goal is to replace distributors and middlemen and let stores buy directly from suppliers based on real-time demand and inventory. The deals flesh out its own online shopping offerings, open sales channels, and expand its logistics network.
Alibaba also sees an opportunity in helping Chinese brands upgrade their computer systems, letting them adjust inventories more quickly in response to demand - an undertaking that now requires several layers of reporting between stores and the brand.
Ma has said that he sees "tremendous challenges" for pure e-commerce operators as country's economy slows."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.
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 U.S. businesses to its site.
Alibaba owns about 27.8 per cent of Intime and Shen owned 9.17 per cent of shares as of Tuesday, according to the filing.