(Adds Wumart, Dairy Farm, Tesco and Carrefour as other bidders, comments from people familiar with the situation and analyst and updates with closing share price.)
By Joyce Li and Amy Or
Of DOW JONES NEWSWIRES
HONG KONG -(Dow Jones)- Lotte Shopping Co. (023530.SE) has agreed to buy Chinese supermarket chain Times Ltd. (1832.HK) in a deal worth HK$4.87 billion (US$629 million) that will substantially expand the South Korean company's foothold in China, the two firms said in a joint statement Tuesday.
Even though the South Korea retail chain operator didn't offer the highest bid, it managed to beat domestic and international supermarket chain operators in the sale process as it was willing to pay cash, people familiar with the deal said Tuesday.
Among its competitors for the asset, they said, were Chinese supermarket chain Wumart Stores Inc., backed by private equity firm TPG Inc., and Dairy Farm International Holdings Limited (DFI), which operates the Wellcome supermarkets chains, Mannings health and beauty stores and 7-eleven convenience stores in Hong Kong. The U.K.'s Tesco PLC (TSCO.LN) and French retail giant Carrefour SA (CA.FR) had also participated in the bidding process run by HSBC Holdings PLC (HBC), another person said.
Dairy Farm and Tesco declined to comment, while Wumart and Carrefour couldn't immediately be reached.
Lotte, advised by Nomura Holdings Inc. (8604.TO), will buy all of the 873.99 million shares Times has issued at HK$5.575 each, via its Hong Kong unit, Lotte Shopping Holdings (Hong Kong) Co. Lotte will pay cash for the shares.
"The highest bidder tried to finance the acquisition with a mix of cash and equity," one person said, without naming the company that bid the highest. "But at the moment, cash is king."
Another person said Lotte Shopping's relatively small scale of operations in China also helped.
"The small scale is unlikely to arouse anti-trust concerns, and hopefully will get the deal smoothly through regulators' vetting," the person said.
The acquisition, if approved by Times' minority shareholders and regulators, will add a chain of 53 hypermarkets and 12 supermarkets in the wealthy eastern Chinese province of Jiangsu to Lotte Shopping's small presence in China.
Lotte Shopping has a department store in Beijing, which it opened in August 2008, and nine discount stores - eight of which it acquired from China Trade Association Makro Commercial Co. for US$89 million in January 2008. It also plans to open two more discount stores by the end of the year.
Lotte Shopping has been seeking to branch out from its domestic market, where it operates 25 Lotte department stores and more than 200 discount stores and supermarkets, on top of cinemas and Krispy Kreme donut shops. Last year, it bought PT Makro Indonesia, a chain-store that has 19 outlets in Indonesia, for US$212.6 million.
Investors Cheer 20% Premium Offer By Lotte
The HK$5.575 price Lotte Shopping offered represents a premium of 20% to Times' last traded price of HK$4.64 prior to its suspension at 0254 GMT on Oct. 12, ahead of the announcement Tuesday.
DBS Group Research said in a note that the offer price was "acceptable" as it translates to a 26.2 times Times' forecast 2010 earnings and beyond the maximum HK$5.5 a share offer price the research house had expected.
When trading resumed Tuesday, Times jumped as much as 17.7% to HK$5.46. While giving up early gains, the stock still closed 14.2% higher at HK$5.30, outperforming the Hang Seng Index's 0.8% gain.
Lotte Shopping said it aims to delist Times, if at least 90% of the Hong Kong company's shareholders accept the takeover offer. The deal already has the backing of Times' controlling shareholder, Chairman Kenneth Fang, who has extensive business interests in the garment industry. Fang's family has a 72.3% stake in the company.
Lotte Shopping said the offer will be valid as long as 70% or more of Times' shareholders accept the offer, but in that case, Times will continue to be listed in Hong Kong.
-By Joyce Li and Amy Or, Dow Jones Newswires; 852-2802-7002; joyce.li@dowjones.com