The owner of Chinese big-box commerce giant Wumart has won a competition for control of one of western China’s biggest retailers after Wumei Holdings and associated investors increased their stake in Yinchuan Xinhua Department Store to 40 percent, through a share tender completed on September 6th.
The share offer enabled the Beijing-based owner of China’s Wumart stores to gain an additional 5.1 percent stake in the largest retailer in Yinchuan, the capital of western China’s Ningxia Autonomous Region, according to reports in the mainland press.
The share acquisition allows Wumei to continue expanding one of China’s largest retail chains, and seemingly brings an end to a three-year battle to fend off a hostile takeover bid by a Shanghai conglomerate.
Share Offer Costs Wumei RMB 250M
Following the successful share tender, Wumei and its allies now control over 40 percent of Xinhua shares, giving them an eight percentage point margin over would-be rival Shanghai Baoyin Electronic Materials.
Wumei’s offer to the company’s independent investors of RMB 18.6 per share for the Shanghai-listed company helped it bring in 13.54 million shares, and is expected to cost the Beijing-based chain stores operator up to RMB 250 million.
Prior to the tender offer, which started in early August, Wumei and friends had held 34.93 percent of the the Ningxia retailer — a less than two percentage point margin over Shanghai Baoyin’s 32.98 percent stake with the eastern China group actively pushing for board representation since 2015.
Following the share buyout, Xinhua Department Store’s independently trading stock is now reduced to 25 percent of the total shares in the company — the legal minimum to maintain a listing on a mainland exchange. Without the opportunity to buy more shares on the open market, Shanghai Baoyin’s takeover options appear limited.
Wumei Gains Western China Prize
The rival groups had been competing for control of Xinhua’s holdings, which include a large department store and hundreds of retail shops in the capital city of Yinchuan and which helped the company bring in annual turnover of RMB 6 billion in 2017.
Wumei, which is helmed by founder and chairman Zhang Wenzhong, first invested in Xinhua in 2004, and has helped the company to achieve RMB 3.95 billion in revenue during the first half of this year — a more than five percent increase compared to the same period of 2017. The retailer’s profits climbed 27.56 percent in the same interval.
Competition for Control
After first buying into Yinchuan Xinhua in 2015, Baoyin had attained its nearly 33 percent stake during last year. However, despite being the retailer’s second-largest shareholder, Baoyin boss Cui Jun had seen multiple applications for board representation denied, according to local media accounts.
On August 14th, Xinhua published announcement which said the application of profit distribution submitted by Baoyin was denied by the board since the department store is facing a capital shortage at the present stage. In an interview with the 21st Century Business Herald, Cui Jun said Baoyin has submitted profit distribution applications in the past three years, but had seen all requests denied.
Wumart Continues Mainland Retail Expansion
While ecommerce has been hogging the headlines in China, Wumei’s network of bricks-and-mortar stores now stands 900 strong, and the company has expanded where competitors have faltered.
Earlier this year, Lotte Shopping announced it was selling one of its subsidiaries operating Lotte Mart in China to Wumei Holdings for 248.5 billion won ($220 million) following a spat between China and South Korea over the deployment of an missile defense system.
That acquisition followed Wumei’s 2014 buyout of B&Q China, the mainland branch of the British home improvement retailer.