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Wumart Stores aborts move for 36 CP Lotus outlets in China

China's supermarket chain Wumart Stores has terminated its two-month-long negotiation to buy 36 outlets of CP Lotus in China, according to news reports.

Wumart said in a statement to Hong Kong's stock exchange yesterday that it isn't pursuing a deal to buy outlets from CP Lotus.

"The company would wish to emphasise that it has taken into account the best interests of its shareholders," Wumart said.

CP Lotus is partially controlled by Thai billionaire Dhanin Chearavanont. Dhanin is buying at home and abroad with deals including CP Group's purchase of a US$9.4 billion (Bt301.25 billion) stake in China's Ping An Insurance (Group). CP All, a Bangkok-based 7-Eleven operator controlled by the billionaire, recently struck a deal for the purchase of discount wholesaler Siam Makro.

The Wall Street Journal reported that a separate statement from Hong Kong-listed CP Lotus said, "Despite extensive negotiations in good faith, CP Lotus and Wumart were not able to make sufficient progress in reaching agreement on certain key terms for the proposed transactions."

CP Lotus currently has 57 outlets in China. It posted a loss of 392 million yuan (Bt2.05 billion) last year, compared with a profit of 23.8 million yuan in 2011. Wumart's net income totalled 602 million yuan in 2012, up 2.7 per cent from a year earlier. Its net debt as of June 30 was 434 million yuan. In Hong Kong trading, both companies saw a decline in share prices yesterday: 7.7 per cent for Wumart and 5.2 per cent for CP Lotus.

A stock swap deal was announced on October 16. Wumart was to buy 36 stores from CP Lotus for HK$2.3 billion (Bt9.51 billion). Under the share swap, it also planned to buy a roughly 10 per cent stake in CP Lotus for HK$547.9 million, while CP Lotus planned to buy a nearly 14 per cent stake in Wumart for HK$2.89 billion. Wumart then said that this purchase would expand its business in northern China.

According to The Wall Street Journal, the failed deal would have consolidated China's fragmented retail grocery market. Wumart has a 1.8 per cent share of hypermarket sales in China and a 0.3 per cent share of supermarket sales, according to market-research firm Euromonitor International. Hypermarkets are large stores that sell household goods and clothing in addition to food. Top hypermarket Sun Art Retail Group Ltd holds a 14 per cent market share, while leading supermarket operator China Resources holds a 2 per cent share, Euromonitor reports.

According to Bloomberg, Beijing-based Wumart planned to expand its chain to 145 markets and 396 mini-markets across the country. A slowing economy and rising competition are encouraging consolidation in China's retail industry.

In October, Xu Ying, Wumart executive director and president told a press conference: "China's existing retail market is very fragmented. We hope to expand into new geographical markets, increase efficiency and reduce costs with this strategic alliance with CP Group and CP Lotus."

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