Date
23 May 2018
The deal valued Wanda at 242.9 billion yuan, 13 percent above its market cap of 215 billion yuan when it delisted from the Hong Kong market in 2016. Photo: Reuters
The deal valued Wanda at 242.9 billion yuan, 13 percent above its market cap of 215 billion yuan when it delisted from the Hong Kong market in 2016. Photo: Reuters

Some thoughts on Wanda Commercial’s 34 billion yuan deal

Tencent Holdings has partnered with Suning Commerce Group, JD.com and Sunac China Holdings to buy a 14 percent stake in Wanda Commercial Properties for 34 billion yuan (US$5.4 billion).

The deal is seen as the world’s single biggest alliance between new economy and bricks-and-mortar businesses. It is expected to help build a new retail model in China that integrates offline and online channels.

We can look at the transaction from a couple of angles.

First, it’s quite interesting that retail company Suning also participated in the deal. The nation’s leading home appliance retailer is long regarded as a loyal ally of Alibaba. In August 2015, Alibaba paid 28.3 billion yuan for a 19.99 percent stake in Suning, which in turn invested 14 billion yuan to acquire 1.1 percent of Alibaba.

Alibaba remains the second largest shareholder of Suning. And it’s widely believed that Alibaba made a major bet on Suning in order to integrate online and store-based shopping. Thus, it’s a bit of a surprise that a close ally of Alibaba is now making a 9.5  billion yuan investment in Wanda together with its biggest rival Tencent.

The truth is, the strategic tie-up between Alibaba and Suning has made little progress over the years. Suning’s 1,700-plus outlets in China have seen no big changes from three years ago, and the company continues to operate its own e-commerce platform, Suning Yigou.

Meanwhile, Alibaba has been pushing into the brick-and-mortar sector, but largely through its other acquisitions such as Intime Retail (Group), Lianhua Supermarket, Sanjiang Shopping Club and Bailian Group.

Suning then announced that it sold 5.5 million shares of Alibaba on Dec. 11 for 6.2 billion yuan. That represents around one-fifth of its total stake in Alibaba.

This offers an example of how big tie-up deals may end up with little real cooperation and results.

In another example, Wanda joined Baidu and Tencent in 2014 to establish an e-commerce platform with an investment of 5 billion yuan. The deal was aimed at challenging Alibaba’s dominance in the e-commerce space.

However, the tie-up has made little progress and Tencent and Baidu both exited in 2016.

In the Wanda Commercial deal, at least each party got what it wanted. Wanda secured the financing it much needed, while the buying consortium got a good price.

The deal has valued the company at 242.9 billion yuan, 13 percent above its market cap of 215 billion yuan when it delisted from the Hong Kong market in 2016.

By contrast, shares of China’s leading property developers China Evergrande, Country Garden and Sunac Holdings all have jumped more than fivefold in the same period. So, relatively speaking, Wanda Commercial is still valued at a discount.

Among the four investors, Sunac might benefit most because if Wanda Commercial intends to divest of its property assets, Sunac might be the most likely buyer as property is not the main business of the other three.

Chinese property tycoon Wang Jianlin delisted Wanda Commercial from the Hong Kong market two years ago. The unit owns 235 Wanda Plazas in China with a total area of 31.53 million square meters.

The full article appeared in the Hong Kong Economic Journal on Jan 31

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RT/CG

Hong Kong Economic Journal columnist

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