[BEIJING] Alibaba Group Holding Ltd will spend 28.3 billion yuan (S$6.35 billion) for a stake in Suning Commerce Group Ltd as China's biggest e-commerce operator adds a network of electronics stores in its biggest deal ever.
Alibaba will buy a 19.99 per cent stake in Suning, which in turn will spend as much as 14 billion yuan for shares in the e- commerce company, according to a Business Wire statement on Monday. The companies will partner in logistics and online sales to target deliveries as fast as two hours.
Alibaba Chairman Jack Ma is beefing up his retail presence after a 24 per cent drop in the company's market value this year, bolstering the appeal of e-commerce operations facing slowing growth in China. Adding Suning to a partnership with department store operator Intime Retail Group Co helps Alibaba compete with JD.com Inc, which specialises in selling electronics and has surged in New York trading this year.
"Suning has one of the largest physical networks for selling appliances and that would help Alibaba's location-based services," said John Choi, an analyst at Daiwa Securities Group Inc. in Hong Kong. "Alibaba is becoming much more involved in offline retail through investments." Alibaba's American depositary receipts gained 2.1 per cent to close at US$80.47 in New York on Monday. The stock has declined 23 per cent this year. JD.com Inc, a rival Chinese online retailer, plunged 6.3 per cent in US trading to close at US$30.06, the lowest since April 6.
Suning has more than 1,600 outlets in about 290 cities in China selling appliances, books and baby products. Alibaba will become the second-largest investor in the Nanjing-based retailer, trailing only Chairman Zhang Jindong.
Logistics Partnership Alibaba is paying 15.23 yuan a share for the stake, which is about 10 percent more than Suning's closing price on July 31, its last day of trading before being halted. Shares are up 53 per cent this year.
"We're going to be able to leverage on Suning's physical infrastructure," Alibaba Vice Chairman Joseph Tsai said during a conference call.
The companies will link their customer databases so they can tailor services such as in-store mobile payments, Chief Executive Officer Daniel Zhang said.
The acquisition is Alibaba's biggest-ever, excluding a US$7.1 billion share buyback in 2012 from Yahoo! Inc.
Alibaba has quickened the pace of its deals this year as its share price plummets in New York trading. Since January, Alibaba has announced 22 deals at a total value of US$9.1 billion, compared with 25 deals all of last year at a value of US$5.9 billion.
The Suning partnership will help Alibaba expand in an electronics and appliance retail market forecast to grow 23 per cent to 1.1 trillion yuan by 2018, according to researcher Euromonitor.
Suning will partner with Alibaba's Cainiao logistics affiliate, enabling the companies to cover almost all of the 2,800 counties and districts in China.
"Retail e-commerce also needs the ground teams to serve its customers, especially for the electronics appliances," said Ray Zhao, an analyst at Guotai Junan Securities Co. "It's difficult for e-commerce players to acquire more good logistics land." Suning's No. 1 rival, Gome Electrical Appliances Holding Ltd, has taken a different direction in its strategy. Two weeks ago, the Beijing-based company signed a deal to buy a company owned by jailed founder Huang Guangyu for HK$11.3 billion (S$2.07 billion). That would help it increase the number of outlets by 50 per cent to 1,714 in 436 cities, exceeding those owned by Suning.
Alibaba is scheduled to report fiscal first-quarter earnings on Wednesday.