Alibaba Buying Out China’s Sun Art Retail for $3.6B

E-commerce giant Alibaba continued to expand its offline retail empire today with a deal to take control of China’s largest hypermarket operator for HK$28 billion ($3.6 billion).

The Hangzhou-based company said in an announcement to the Hong Kong stock exchange that it had reached an agreement to boost its stake in Sun Art Retail Group to 72 percent, acquiring the operator of 484 Auchan and RT-Mart stores in China from entities controlled by the Mulliez family of France.

The transaction, which would be conducted through its Taobao China Holding unit, will increase Alibaba’s Sun Art holding from the 36.16 percent stake that it had acquired in 2017, and comes as the mainland’s dominant e-commerce player continues to expand its bricks and mortar presence.

“Alibaba’s strategic investment in Sun Art in 2017 was an important step in our New Retail strategy,” Alibaba chairman and CEO Daniel Zhang said in a separate press release. “The alliance we formed with Auchan Retail and Ruentex was instrumental in building a robust infrastructure to create opportunities and value in China’s retail sector.”

Pandemic Seen Accelerating Retail Convergence

To accomplish the transaction, Alibaba is acquiring a 70.94 percent stake in A-RT Retail Holdings Limited from Auchan Retail International SA and its subsidiary Auchan Retail. The two companies hold approximately 51 percent of Sun Art.

Following the deal, Sun Art will become part of Alibaba and will be consolidated into the group’s financial statements. The hypermarket chain’s CEO, Peter Huang, will have his role expanded to include the title of chairman of Sun Art, the statement indicated.

In explaining its rationale for the acquisition, Alibaba praised Huang’s performance in moving Sun Art online, and noted the potential for synergies between the offline retailer and Alibaba’s online businesses.

“As the COVID-19 pandemic is accelerating the digitalization of consumer lifestyles and enterprise operations, this commitment to Sun Art serves to strengthen our New Retail vision and serve more consumers with a fully integrated experience,” Zhang added.

Following Up on 2017 Deal

Today’s deal comes three years after Alibaba paid $2.9 billion to acquire just over 36 percent of Sun Art as part of what was termed at the time as a strategic alliance with Auchan Retail and Taiwan’s Ruentex Group.

In its announcement today, Alibaba pointed out that all of Sun Art’s stores in China have been integrated into Alibaba’s supermarket platforms, and now deliver to customers via the e-commerce firm’s Ele.me and Cainiao logistics networks.

In addition to its Sun Art acquisition, Alibaba has invested in developing its own line of Hema grocery stores, and in May 2019 purchased the Red Star Macalline furniture mall business from Warburg Pincus for just less than HK$2.7 billion.

As required by Hong Kong law, once Alibaba’s acquisition is completed, it will extend an unconditional general offer to acquire all of Sun Art’s remaining issued shares at HK$8.10 per share, which represents a 21 percent premium over the stock’s Friday closing price.

Under the terms of that offer, Alibaba’s Taobao unit could be paying up to approximately HK$17.0 billion to acquire Sun Art shares held by other shareholders.