Thai mogul emerges on top in supermarket swap

October 16, 2013

By Una Galani

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Thailand’s richest man has emerged on top in a Chinese supermarket swap. Dhanin Chearavanont, whose conglomerate picked up a stake in insurer Ping An and acquired cash-and-carry group Siam Makro earlier this year, is offloading the bulk of his loss-making retail operations in China in return for shares in local rival Wumart Stores. Both sides benefit from the deal worth HK2.9 billion ($373 million) but Dhanin is ahead by an aisle.

After his previous debt-funded deals, Dhanin has gone for a change of pace. Hong-Kong listed CP Lotus, a unit of Dhanin’s CP Group, will sell 36 stores across Beijing, Shanghai and other provinces to Wumart along with a 10 percent stake in its remaining business. Wumart will pay for its acquisition with 13.8 percent of its own equity. The cross shareholdings will be subject to an 18 month lock-up period.

Both sides can claim a decent price. The deal looks cheap at 0.3 times last year’s sales, compared to trading multiples of around 0.6 times for global supermarket operators like Walmart and Tesco. The latter agreed in August to fold its own China operations into a joint venture with China Resources Enterprise. Among China peers, though, it looks more generous. Electrical retailer Gome, for example, trades on less than 0.2 times.

It’s a good fit for Wumart which fancies itself as a consolidator in a highly fragmented industry. The Chinese supermarket operator has cherry-picked CP Lotus assets in a similar geography and sales quality to its own. The stores Wumart is acquiring generated around 23,000 yuan of revenue per square meter in 2012, a little bit more than its existing operations – and more than twice the sales density of the clutch of south China stores the Thai group will keep hold of.

Dhanin, though, has the best deal at the checkout. The deal values two-thirds of his stores at the equivalent of the whole company’s value before the deal – even including a spike in the share price immediately before the swap was announced. The south China stores could provide synergies if CP Group wins the race for ParknShop, the supermarket chain put up for sale by Li Ka-shing’s Hutchison Whampoa. Dhanin’s supermarket sweep may just be a smart prelude to the next acquisition.


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