Paradise runs into opposition on Dazhong
China Paradise Electronics Holdings, the mainland's third-largest appliance retailer, yesterday said its plan to buy Beijing-based rival Dazhong has run into opposition from the Ministry of Commerce, which is yet to approve the deal.
But analysts say the real reason for the delay is because of the slump in China Paradise's share price, which has halved since it unveiled the proposed purchase and can no longer afford Dazhong.
'We have been waiting for the approval from the Ministry of Commerce for some time,' said company spokesman Zhang Yifan.
Because it is listed in Hong Kong, China Paradise is classified as a foreign-invested firm and any acquisitions on the mainland are subject to ministry approval.
Since the beginning of the year the Ministry of Commerce has slowed a number of acquisitions by foreign firms, most prominently the planned buyout of Xugong, China's biggest construction machinery company, by US private equity fund Carlyle Group.
But the mood of economic nationalism in Beijing is unlikely to extend to mainland companies with overseas listings and Dazhong is a private company in a non-strategic industry.
'This deal was full of uncertainty from the beginning and since China Paradise announced its intentions its share price has halved so the price Paradise can pay has also been halved,' said one analyst.
'If China Paradise was trading at $4 then Dazhong would be tempted. At that price 25 per cent of China Paradise would be worth $2 billion but at the current price it is only worth $1 billion.'
China Paradise's shares shed 3.33 per cent yesterday, closing at $2.175.
In the original acquisition plan, Dazhong's price was to be decided by the forward price to earnings ratios of the two companies and a deal could have involved either cash or shares.
