(Bloomberg) – Alibaba Group Holding Ltd. is ready to make her first major investment since paying a record anti-trust fine in a brutal crackdown on Jack Ma’s internet empire.
A consortium led by the e-commerce giant and the Jiangsu provincial government is on the verge of a deal to buy a stake in the retail arm of Chinese billionaire Zhang Jindong’s Suning conglomerate, people familiar with the matter said. The deal would increase Alibaba’s 20% stake in Suning.com Co., one of China’s largest home appliances, electronics and other consumer goods retailers valued at around $ 8 billion.
The potential investment could mean a comeback for Alibaba as authorities fined the company $ 2.8 billion in April for antimonopoly violations, fueling its first loss in nine years. The deal would help the e-commerce company break into the traditional electronics stronghold of top competitor JD.com Inc., while working with local authorities signals that the tech billionaire and his company are ready to do business again.
“Should the deal go through, it will reinforce the eventuality that Alibaba will not allow a regulatory overhang to limit its strategic ambitions or opportunistic investments,” said Michael Norris, a tech analyst at Shanghai-based research firm AgencyChina. “The potential strategic value of Suning’s stores, distribution centers and last mile delivery stations for an increasingly omnichannel Alibaba company is clear.”
Any deal will likely have to be approved by the State Administration for Market Regulation, the increasingly powerful antitrust regulator in Beijing. Previously, the regulator had fined Alibaba for making a previous investment in Intime Retail Group Co.
Even as Alibaba tries to move on, Mas fintech arm Ant Group Co. is still undergoing a painful, state-mandated transition to a financial holding that is regulated more like a bank. Beijing has also raised concerns about Alibaba’s media holdings and would like the company to sell those assets, including the South China Morning Post, Bloomberg News reported in March.
An announcement could be made as early as this week, according to those who asked not to be identified because the information is private. Negotiations are ongoing and a deal could be delayed or fall apart, people said.
Zhang, the Suning founder, will no longer have control of the company after the deal, people said, marking the end of his career as a high-profile entrepreneur who has propelled his company into a number of businesses, including owning Inter Milan Soccer team. That rapid expansion had fueled concerns about the group’s liquidity, which heightened after the billionaire waived his claim to a payment from China Evergrande Group, the world’s most indebted property developer, in September.
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Suning.com is based in Nanjing, the capital of Jiangsu Province – about a three-hour drive from Alibaba’s home base in Hangzhou, where it remains one of the most influential corporations, even after the actions of the central government. The competitive company has a strong physical retail presence in China, particularly in its eastern portion which includes the Shanghai financial center.
According to Euromonitor International, it has the fifth largest nationwide share of 4.4% among hypermarkets in 2020. The Sun Art Retail Group Ltd., which is controlled by Alibaba, has the largest share. with 13.7%. Consolidation of Alibaba entities would pose a challenge to other players like Walmart Inc.’s China business – currently ranked fourth with a 9.3% market share – which is affiliated with JD.com in its online operations .
Alibaba and Suning have long been closely associated and partnered in areas that range from logistics to online sales. In 2015, Alibaba invested $ 4.6 billion on its 20% stake in Suning.com, which in turn paid $ 2.3 billion to purchase a 1.1% stake in the larger company it owned later reduced. Since then, Suning.com’s shares have fallen about 60%, although Alibaba’s shares have more than doubled. The smaller company’s bonds rose on Wednesday after news of the potential bailout.
The partnerships with Suning and other brick and mortar retailers are part of the e-commerce giant’s goal of building an empire that seamlessly integrates offline and online shopping – a strategy it calls New Retail. Daniel Zhang, Alibaba’s chief executive officer, has made expansion into physical retail, and specifically grocery, a cornerstone of its growth strategy, an effort that paid off during the coronavirus pandemic.
In addition to investing in traditional retailers, the company has ventured into the offline world with physical stores for its grocery and grocery startup Freshippo. The New Retail business has since grown to a $ 25.6 billion business, contributing one-fifth to total sales for the year ended March.
A larger stake in Suning.com could help Alibaba stave off growing competition from JD.com, that of Tencent Holdings Ltd. supported online retail giant which is particularly strong in electronics and home appliances. The segment accounted for just over half of JD.com’s revenue in the March quarter. Richard Liu’s business has expanded into offline retail as well, with plans to build 300 flagship home appliance stores in second and third tier cities and 5,000 stores in smaller towns and villages by 2025.
“Alibaba already owns 20% of Suning.com and the two companies are working together to develop new shopping opportunities for consumers in mainland China,” said Catherine Lim, senior analyst for Bloomberg Intelligence. “An increased stake in Suning.com could facilitate such collaborations and increase Alibaba’s share of online consumer electronics retail sales, which currently lags behind competitor JD.com.”
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