Hong Kong-listed Lianhua Supermarket Holdings Co., Ltd. (00980.HK) stated in an announcement on May 29 that its shareholder Shanghai Yiguo E-commerce Co., Ltd. plans to sell its 18 percent stake in Lianhua Supermarket to E-commerce giant Alibaba Group Holding Ltd. Post the deal, Alibaba is the second-largest shareholder in the listed company. Upon the news, stock price of Lianhua Supermarket rose by 24.44 percent to end at 3.92 Hong Kong dollars per share on May 29, which once surged by 33 percent during trading hours.
Alibaba becomes the second-largest shareholder holding 18 percent stake in Lianhua Supermarket
Lianhua Supermarket is a subsidiary of Bailian Group. At present, the company makes deployment across the country and is engaged in operating large comprehensive supermarkets, supermarkets and convenience stores. Its brands include Lianhua Supermarket, Hualian Supermarket and Quick Convenience.
According to its annual report, by the end of last year, it had 3,618 physical stores across China, including the 2,286 outlets in Shanghai.
It was reported at that time that they conducted cooperation in interconnection of payment finance and interconnection of membership system. Their cooperation didn’t involve capital cooperation.
But Alibaba directly became a shareholder of Lianhua Supermarket four months later.
A-share-listed company Shanghai Bailian Group Co., Ltd., a subsidiary of Bailian Group announced on May 26 that Lianhua Supermarket’s shareholder Shanghai Yiguo E-commerce signed share purchase agreement with Alibaba to transfer 200 million shares to the latter.
These stakes accounted for 18 percent of total shares of Lianhua Supermarket. Another A-share-listed retail company Yonghui Superstores Co., Ltd. transferred 237 million shares of Lianhua Supermarket to Shanghai Yiguo E-commerce in last December. And Shanghai Yiguo E-commerce sold these shares to Alibaba this time.
Public information showed that Shanghai Yiguo E-commerce is an O2O e-commerce specialized in fresh produce, and Alibaba is one of its major investor. This means that after this deal, Alibaba’s indirect investment in Lianhua Supermarket through Shanghai Yiguo E-commerce becomes direct investment.
Based on the previous equity structure of Lianhua Supermarket, subsidiaries under Bailian Group totally hold more than 42 percent equity in Lianhua
Supermarket. Besides making deal with Alibaba, Shanghai Yiguo E-commerce transferred 2 percent equity of Lianhua Supermarket to Bailian Group, pushing up shareholdings of the latter.
Most of the remaining big shareholders are financial institutions. For instance, Citibank, China Galaxy International Asset Management (Hong Kong) Co., Ltd. and ICBC International Asset Management Limited hold 15.02 percent, 9.82 percent and 9.31 percent equity in the company respectively.
Acquiring the 18 percent equity, Alibaba will become the second largest shareholder of Lianhua Supermarket. It is learnt that price of the transfer was not mentioned in announcement of both Shanghai Bailian Group and Lianhua Supermarket. Based on the stock price of 3.15 HK dollars per share of Lianhua Supermarket before trading resumption, Alibaba should pay over 630 million HK dollars in total.
Lianhua Supermarket suffered losses for 2 years impacted by e-commerce
Lianhua Supermarket was listed in Hong Kong market in June 2003 and is the first Chinese mainland retail company to have listed in Hong Kong.
Lianhua Supermarket began to decline from glorious development from 2011. Net profit of Lianhua Supermarket grew by over 20 percent annually on average before 2011 and it rose by 44.34 percent year on year in 2007, according to statistics from Hithink RoyalFlush Information Network Co., Ltd.
But after 2011, its net profits dropped by 36.65 percent, 70.08 percent and 10.65 percent in 2012, 2013 and 2014 respectively, statistics showed. ‘
It lost 450 million yuan last year, which is the second year after it suffered loss of nearly 500 million yuan in 2015. The number of its physical stores fell by over 200 in 2016.
Meanwhile, turnover of Lianhua Supermarket keeps decreasing for three consecutive years. It sales touched a historic low of 26.67 billion yuan last year since 2013. It recorded 30.38 billion yuan, 29.15 billion yuan and 27.22 billion yuan during 2013 and 2015 respectively.
“The group is faced with various challenges including change in consumers’ behavior and enterprise system and mechanism not adapted to market change. It also encounters a lot of obstacles while deepening reform and innovation & transformation,” Lianhua Supermarket said in 2016 annual report.
(By Vanessa)
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