Alibaba Group Holding and Shen Guojun, founder of Intime Retail (Group), offered HK$10 per share to take private the mainland shopping mall and department store chain operator in a cash transaction.
The price represents a premium of 42 percent above the closing price and is equivalent to 1.7 times price-to-book ratio. By contrast, most of Intime’s peers are valued at 0.5 times price-to-book.
The news has boosted a number of department store stocks amid hopes that the sector may start to bottom out after losing business to online shopping for years.
Intime showed signs of recovery in its earnings last year. It appears that it has already achieved success in the so-called “new-retail” model. But that may be just an isolated case given its strong support from Alibaba’s e-commerce empire.
Intime’s first-half sales revenue and net profit in 2016 grew 13 percent and 14 percent, respectively, from the second half of 2015.
There is a good chance that Intime could post exciting full-year earnings in March, which may push up the share price.
That’s why Alibaba and Shen decided to offer a 42 percent premium to take the company private now.
Alibaba has spent HK$166 million (US$21.41 million) in acquiring a 9.9 percent stake in Intime in March 2014, and subscribed to HK$3.7 billion of convertible bonds.
It converted all the bonds into equity in June last year and boosted its stake to 28 percent as the largest shareholder. Company founder Shen holds a 9 percent stake as the second largest shareholder.
Alibaba views Intime as a testing ground for connecting online platforms with offline outlets.
It has deployed massive resources in pushing Intime to embrace the internet era.
For example, it has integrated Intime’s shopping website and app into Alibaba’s ecosystem, as well as tapped into big data to explore customer spending patterns and improve shopping experiences.
These state-of-the-art technologies have started to pay off since early last year. Intime is no longer a traditional brick-and-mortar department store. Instead, it has become a hub of online platforms and offline outlets.
Intime can now offer the same price to customers who come to the store or buy online thanks to integration into Alibaba’s procurement and logistics systems, solving a common problem with shoppers who would try out at the physical store and then go online to look for cheaper offers.
Customers can also opt to order online and collect or try out at Intime stores later.
That’s exactly the omni-channel retail plan revealed by Alibaba’s Jack Ma last year, which will allow consumers to enjoy multiple shopping and delivery options and enjoy membership benefits online as well as at the participating brands’ physical stores.
However, Intime’s success may not be replicable by its peers, unless they can also enjoy the backing of a behemoth like Alibaba, which boasts an annual GMV (gross merchandise volume) of nearly 3 trillion yuan compared with Intime’s turnover of just several billion yuan.
This article appeared in the Hong Kong Economic Journal on Jan. 11
Translation by Julie Zhu
[Chinese version 中文版]
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