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Supermarket chain says it may not complete proposed 1.1b yuan acquisition of rival

Wumart Stores, Beijing's biggest supermarket chain which posted 29 per cent increase in annual profit, has indicated that it may not complete a proposed 1.1 billion yuan acquisition because it is unable to fund half of the deal with shares after trading in the stock was suspended amid  an investigation  involving the company's former chairman.

Net income reached 212.3 million yuan or 18 fen per share for the year to December, up from 164.5 million yuan or 14 fen a share a year ago. Sales gained 45.3 per cent to 5.7 billion yuan.

The earnings were lower  than the 245 million yuan estimate  in a Thomson Financial  survey of 12 analysts.

The company said the growth in sales was driven by a 8.56 per cent increase in sales in comparable stores and revenue contribution since September from Mei Lian Mei, the No4 Beijing supermarket chain that it had acquired.

Second board-listed Wumart paid 253.5 million yuan for a 68 per cent stake in Mei Lian Mei last year.

It bought 27.7 per cent of Shanghai-listed retailer Yichuan Xinhua Department Store in April for 176.7 million yuan as part of its expansion in northwestern China.

However, its  proposed acquisition of 50 per cent of Jiangsu Times Supermarket for 1.1 billion yuan, a deal that should have been completed at the end of last year,  faced uncertainty, company management and analysts said.

Wumart planned to pay CS Investment HK$570.9 million in cash and 24.8 million of new H shares or 7.5 per cent of its expanded equity worth HK$570.4 million to acquire Jiangsu Times.

Wumart has not disclosed how much it had paid to CS Investment apart from a HK$22.8 million deposit.

The deal was floated in September, before Wumart's former chairman, Zhang Wenzhong, was detained in November for investigation on how he raised the capital to start the company.

'We have not yet reached a final conclusion [over  Jiangsu Times] at this moment,' Wumart's director of finance, Xu Ying, said yesterday.

'If it fails, the provision is in this year's P&L [profit and loss accounts],' she said without giving figures.

CLSA, in a recent research report, said: 'The Jiangsu Times acquisition agreement is technically void now ... [as it has] passed the prescribed deadline.'

Wumart in November was also forced to scrap its proposed HK$688 million share placement with institutional investors, arranged by Citigroup,  after the former chairman's detention.

Zhang  resigned as the company chairman and executive director following the investigation and was succeeded by vice-president Wu Jianzhong.

'The said investigations do not relate to Dr Zhang in respect of his senior management positions with the group and are not directed at the business of the group or its assets,' Wumart said in a statement yesterday.

Wumart had 502 stores, including 82 superstores and 420 minimarts, in Beijing and surrounding areas at the end of December, down from 567 stores at the end of September.

The firm had closed 12 mini-marts and 21 subway stores due to  incurring losses.

The company's gross margin fell 0.6 percentage point to 15.5 per cent last year while net margin fell 0.5 percentage point to 3.7 per cent.

Competitor Beijing Jingkelong, the city's No2 supermarket chain, last week reported a 33 per cent rise in annual net profit to 99.6 million yuan as sales grew 9.9 per cent to 4.53 billion yuan.



Wumart lacks funds  for Jiangsu Times bid