| HONG KONG
HONG KONG Wal-Mart Stores Inc. (WMT.N), the world's biggest retailer, struck a $1 billion deal to take over a Chinese rival by 2010, challenging Carrefour (CARR.PA) as the largest operator of super-centers in booming China.
Bentonville, Arkansas-based Wal-Mart said it bought 35 percent of Bounteous Co. Ltd., a deal that could trigger consolidation in China's ferociously competitive $1 trillion retail market.
Under terms of the deal, Wal-Mart said it would buy control of the Taiwan-based chain by 2010 if conditions were met.
Financial terms were not disclosed, but a source familiar with the situation said Wal-Mart would eventually pay a total of $1 billion for all of Bounteous, which operates 101 hypermarkets in 34 Chinese cities under the Trust-Mart brand.
Sources said that while Trust-Mart is loss-making, Wal-Mart was attracted to its large-scale, well-located sites, which are hard to come by in crowded Chinese cities.
"It's really difficult to find good locations," said Tai Fook Research analyst Ophelia Tam.
Wal-Mart already operates 73 stores in China and employs more than 37,000 people there.
France-based Carrefour, the world's No.2 retailer and the largest foreign operator in China, added 20 China stores last year to bring its total in the country to 90 by the year-end.
"It's all about tiering and market share. Wal-Mart has a history of buying local operators, and this could make them No. 1 in China," said an analyst at a European investment bank.
Other players include Germany's Metro AG (MEOG.DE), Britain's Tesco Plc. (TSCO.L) and local operators such as Wumart (8277.HK).
"It's a very fragmented market, and so they might be the biggest, but as far as its impact on the retail market, it's probably going to be small," said Tai Fook's Tam.
Wal-Mart's China expansion follows exits last year from its operations in Germany and South Korea.
The company is also close to striking a joint venture with Bharti Enterprises to enter India, a fragmented retail market that restricts foreign operators.
In a statement, Wal-Mart Vice Chairman Michael Duke called the China investment "an important step in bringing our additional scale to our China retail business".
Trust-Mart posted 2005 sales of about 13.2 billion yuan ($1.7 billion) at its Chinese hypermarkets, according to the China Chain Store and Franchise Association, well above Wal-Mart's 9.9 billion yuan in its Chinese stores.
By comparison, Carrefour had 2005 sales of 17.4 billion yuan at its Chinese hypermarkets, while Metro recorded sales of 7.5 billion yuan, the data showed.
International expansion has grown more important for Wal-Mart as U.S. sales growth slows. In its fiscal quarter ending January 31, total sales rose 10.9 percent to $98.09 billion, but international sales rose 29.6 percent to $22.73 billion. U.S. sales at stores open at least one year rose 1.6 percent.
Trust-Mart stores employ more than 31,000 people, and will continue to operate under the Trust-Mart name, Wal-Mart said, with both companies continuing to open new stores.
Credit Suisse CSGN.VX advised Wal-Mart on the transaction, and UBS UBSN.VX advised Bounteous.
(Additional reporting by Jonathan Stempel in New York)