China Resources, Tesco mull joint bid for ParknShop

PUBLISHED : Thursday, 22 August, 2013, 12:00am
UPDATED : Thursday, 22 August, 2013, 4:44am

Tesco, Britain's largest retailer, may join forces with state-backed China Resources Enterprise to bid for ParknShop.

Frank Lai Ni-hium, the chief financial officer of China Resources, said the two companies were "in discussion" that might lead to a possible joint bid for the supermarket chain.

China Resources, which is the largest retailer on the mainland and also owns Hong Kong's third-biggest supermarket chain Vanguard, this month signed a memorandum of understanding with Tesco to merge their hypermarket business on the mainland.

According to sources, ParknShop, the city's biggest supermarket chain with HK$22 billion in annual sales, has so far attracted eight bidders with deals worth between US$3 billion and US$4 billion. Wal-Mart Stores, Lotte Group and Aeon are said to be among the bidders.

Tesco operates a wide range of retail outlets, from hypermarkets to convenience store chain Tesco Express.

The convenience store market in Hong Kong is considered underserved when compared with Japan and Taiwan.

China Resources yesterday announced net profit plunged 54 per cent to HK$1.02 billion in the first half as demand for consumer products grew at the slowest pace since 2006 in the wake of the anti-corruption campaign launched at the end of last year on the mainland that affected premium products. Sales rose 12 per cent to HK$71.8 billion.

Underlying profit fell 11 per cent after excluding gains from property revaluations.

Retail business saw a net profit margin of 1.3 per cent, reflecting the fierce competition in the mainland's fragmented retail market.

Lai said he expected the joint venture with Tesco would help increase the margin in the longer term. But the new entity would incur losses for the first two to three years before the synergy kicked in.

"China Resources could improve its market share in northeast China as Tesco has a relatively strong foothold there," an analyst said.

A bigger market share will bring procurement costs down, he said.

China Resources operates more than 500 hypermarkets while Tesco runs 140 on the mainland.