UPDATE 1-China retailer Wumart strikes $374 mln deal with Thailand's CP Group

Tue Oct 15, 2013 7:31am EDT

* Foreign operators have found it tough to operate in China retail sector

* CP Group is currently in talks to buy Hong Kong supermarket business ParknShop

By Denny Thomas and Donny Kwok

HONG KONG, Oct 15 (Reuters) - China's Wumart Stores Inc will acquire a bulk of CP Group's retail stores on the mainland and take a stake in one of the Thai group's companies in an all-stock deal worth $374 million, helping Wumart to grow its footprint in northern China.

Wumart, an operator of supermarkets, has agreed to buy a majority of the CP Lotus retail stores in China for HK$2.34 billion ($302 million), the companies said in a joint statement. Wumart will also gain a 10 percent stake in CP Lotus, which is listed in Hong Kong and controlled by CP Group, the conglomerate run by Thai billionaire Dhanin Chearavanont.

The deal marks another instance where a foreign-owned retailer in China scales back its presence in the sector. CP Lotus, which has 57 retail stores in China, will part with 36 of its stores in Beijing, Shanghai and various provinces.

Foreign supermarket operators have failed to crack China's fast-growing retail industry due to intense competition, forcing many to retreat or restructure their operations. Hong Kong-listed CP Lotus made a net loss of 46.7 million yuan ($7.7 million) in the six months ended June.

In August, after nine years in China, British supermarket operator Tesco plc decided to fold its unprofitable operation into state-run China Resources Enterprise Ltd to be a minority partner.

For CP Lotus, it will own a 13.8 percent stake in Wumart at the close of their deal.

Wumart, which operated 541 stores in China as of end-June, was advised by J.P. Morgan. Wumart has a market capitalisation of $2.4 billion, while CP Lotus has a market value of $373 million.

Shares in Wumart and CP Lotus were suspended in Hong Kong on Tuesday pending an announcement.

Dhanin's CP Group has been in dealmaking mode across Greater China.

The group has teamed up with private equity firm Carlyle Group to bid for the Hong Kong supermarket operations sold by Li Ka-shing's Hutchison Whampoa Ltd, in a deal that could be worth between $3-4 billion, Reuters previously reported.

CP Lotus's Chairman Ed Chan declined to comment on Tuesday on the parent's intention to bid for ParknShop.

CP Group has interests spanning poultry and animal feed, supermarkets and auto making, and has a long history in China as the first multinational to invest in the country's agri-business in 1979. It was later tasked with helping to modernise China's farm sector.

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