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Shanghai retailers ok milestone merger plan
Updated: 2004-05-12 11:06

Boards of directors of two leading Chinese retailers approved the landmark reshuffle plan to merge at their board meetings separately convened on Monday in Shanghai, according to the companies' statements announced Tuesday.

No. 1 Department Store and Hua Lian are both listed on the Shanghai Stock Exchange and are the most powerful retailers in the country.

The merger plan, however, is subject to the final approval from the Shanghai Municipal Government, the State assets supervision and management commission under the State Council (the Chinese cabinet) and the China Securities Regulatory Commission. The both companies are State-owned enterprises.

The merger will lead to the creation of a retail giant with a capitalization of 5.97 billion yuan (US$719 million), which would own 14 large department stores and three shopping malls with annual sales of 4.16 billion yuan (US$501 million) and profits 220 million yuan (US$26.5 million), according to the retailers.

No. 1 Department Store and Hua Lian are both members of Brilliance Group, China's largest retailing and logistics operator founded in April 2003. Upon its founding, Brilliance Group acquired the largest shareholders of both State-controlled No. 1 Department Store and Hua Lian.

The two previous rivals remained vying against each other, impairing competition as some stores are located no farther than 100 meters from each other on major shopping streets in Shanghai.

Moreover, they maintained uncoordinated development strategies as seen in redundant investment determined separately on one hand, and on the other their transactions, thought to be inner-transactions by others, having tarnished their credibility as listed companies, according to the joint Statement by the both boards.

According to sources with Brilliance Group, the merge was the first step for the group to restructure resources and management. According to the proposed merger plan, Hua Lian would discontinue existence and its assets, debts and rights would be all transferred to No. 1 Department Store.

 If the plan is approved, the shares of Hua Lian will be suspended on trading and will be converted into shares of No. 1 Department Store at certain ratio. The merged company was expected to resume share trading as early as in June when No. 1 Department Store will have over 11 billion shares, with its 70 percent shares being non-tradable and 30 percent tradable.

Wang Zongnan, president of Brilliance Group, said his group will make progress in three aspects in the future: building fashionable department stores, large shopping malls and Brilliance 's own chain outlets. He said the group will have 1,000 supermarkets, convenience stores and shopping centers by the end of this year.

Statistics show that 70 percent of the world's 50 largest retailers have entered Chinese markets, posing great challenges to Chinese retailers, most of which are small, weak and lacking management proficiency.

Wal-Mart, the world's largest retailer, reported global sales of US$258 billion in 2003, while Brilliance's sales in the same year was merely one 20th of the US giant, or 92.1 billion yuan (US$11 billion).

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