Wumarts Acquisition of Metros China Holdings: Why Metro Should Sell

category:Finance
 Wumarts Acquisition of Metros China Holdings: Why Metro Should Sell


On October 11, Wumarts acquisition of Metro China Holdings has been finalized. After the transaction is completed, Wumart Group will hold 80% of the joint venture company established by both sides, and Metro will continue to hold 20% of the shares. Many points will become Metro Chinas technical cooperation partners.

According to the information provided by Metro, the total value of Metro Chinas enterprises is estimated at 1.9 billion euros. Both parties are expected to complete delivery by the second quarter of 2020 at the latest. When the deal is completed, Metro Group is expected to earn more than 1 billion euros in net revenue.

Why did Metro sell it?

Metro was born in Germany in 1964. In 1995, Metro came to China. Meanwhile, Carrefour and Wal-Mart came to China. In 2014, Metro China achieved sales of 18.9 billion yuan, a year-on-year growth of 8%. In 2015 and 2016, it increased by 1% for two consecutive years.

In 2014, Metro began to test the water convenience store and opened its first convenience store in Shanghai, HOMA home, trying to take a share of Chinas fast-growing convenience store market. However, after opening four stores in Shanghai, the Hemai family stagnated. In September 2017, the Hemai family closed its only four convenience stores.

Metros finances also fell. According to Pitchbook data, Metros revenue has been declining since 2010. In 2008, Metros revenue reached its best ever 65.529 billion euros, then slowly fell to 59.216 billion euros in 2015, but in 2016 its revenue fell 63% to 21.87 billion euros. Revenue fell to 21.3 billion euros in 2017. The proportion of Asian market in the overall layout of Metro has been low. In 2018, the number of Metro Asian stores was 140, accounting for 18.2% of the total number of its global stores, and its revenue only accounted for 14.5%.

Metros sale has been rumored for a long time. In 2018, it was reported that Metros China business was seeking to be sold, and Fuxing International was negotiating to acquire Metros shares. In September 2018, foreign media reported that Metro, a well-known wholesale and retail supermarket in Germany, was evaluating its business in China, including the sale of shares and the search for partners. In October 2018, Metro again reported that it was negotiating with banks to find a partner for its China business. On November 2, 2018, it was revealed that Metro was negotiating cooperation with Tencent. On February 14, 2019, Reuters reported that Alibaba is launching a new round of negotiations with German retail wholesaler Metro, or acquiring part of its Chinese business.

In March of this year, there were media reports that Metro had begun to sell its business in China through tendering, with a business valuation of $3 billion and a transaction valuation of $1.5 billion to $2 billion. In response, Claude Sarrailh, President of Metro China, told the media that Metro has excellent assets and customers. In recent years, Chinas business has developed very fast. Metro is indeed looking for partners, hoping to become stronger and more localized.

Why Wumei Buy

Among other bidders, Wumei is not ranked high.

Why did Metro and Wumart cooperate? Some people say it is related to multi-point business. Oxygen Dioxide is one of the four major businesses of Metro, but it has not made any too dazzling achievements. In order to develop online, the first step is to seek local cooperation. Olaf Koch, global chairman and CEO of Metro Group, has said that Metros development strategy in China is not only to develop the oxygen dioxide to a higher level, but also to explore the field of food distribution to achieve rapid business growth. But these two directions will have different answers, and only when a real local partner is found, it is possible to determine which way to combine. As a result, alliances or joint ventures are possible.

Wumart told reporters that the reason for choosing Metro was that Metro has long adhered to high standards of food safety control and implementation of European food safety standards, and every store has obtained HACCP certification, so Metro brand = food safety, we believe that Metros commodity positioning is in line with the needs of Chinas consumer upgrading, in line with the promotion of food safety standards. Therefore, we have reached an agreement with Metro Germany in particular. We should continue to adhere to Metro Chinas quality control system, establish a Quality Control Committee led by Metro Germanys food quality experts, conduct regular and irregular checks on the operating standards of the stores, the health and safety control of all links of the whole supply chain, and the quality control of our own brand processing enterprises. At present, similar inspections and audits are carried out hundreds to 1000 times a year to strictly check whether they meet SOP requirements. In addition, Metro has a professional team, in B2B business, there is a complete service system, hotels, restaurants, kindergarten canteens of institutions, enterprises and schools, highly recognized Metros food supplies, the market demand in this area is huge, Metro is qualified to become the best food distribution service enterprises in China.

Dr. Zhang Wen, founder of Wumart Group and chairman of Multipoint Dmall, said: We believe that under the leadership of its CEO Claude Sarrailh and with the full support of Wumart Group and Multipoint Dmall, Metro China will achieve greater success and become the most reliable food supplier.

Olaf Koch, CEO of Metro Group, said: After careful evaluation, we have chosen to establish partnerships with Wumart Group and Dot Dmall, which are trusted and respected partners of Metro. They share the same values, can bring a lot of resources and expertise, and are committed to the past in Metro China. Seeking development on the basis of achievements and footprints. We believe that this strategic joint venture will have a greater competitive advantage, not only for our Chinese stakeholders, but also for Metro Group and its shareholders to benefit from the joint venture development and success in the coming years.

Metro China, through its strong alliance with Wumart Group and Dmall, will benefit from purchasing and better access to local fresh products, thus providing customers with richer and better products. Metros stake will ensure its continued service capability and food quality, while ensuring a wide range of imports for all customers. The new joint venture will continue to implement all current customer loyalty projects and to implement the existing business agreements between Metro and wholesale business partners, suppliers and other service providers.

Wumart Group will further improve the operational efficiency of Metro China and optimize customersshopping experience through its multi-point Dmall proprietary operating system. Equally important, Wumart Group and multi-point Dmall will bring digital retail expertise that integrates offline and online services and technologies, and will help Metro China improve its digital capabilities and accelerate the development of the burgeoning Chinese retail market.

Zhang Feng, president of Multipoint Dmall, said: We are very happy to be Metros technical cooperation partner in China and support Metro as Chinas leading all-channel food expert. Multi-point digital retail technology is advanced and recognized by the market. We believe that multi-point can help enterprises increase performance, improve efficiency, achieve leapfrog development, and improve user experience through online and offline integrated digital retail solutions. We look forward to working closely with Metro Group and Metro China team to achieve this goal.

How to integrate

According to reports, Metro China will continue to operate independently under the Metro brand in the future, while the headquarters of the new joint venture company will remain in Putuo District, Shanghai.

The new joint venture will maintain the current size of its stores and all commercial operations, while continuing to implement the planned development of new stores. In addition to retaining the current management team led by Kant, the joint venture company will retain the existing staff team.

Metro Group will win two seats on the seven-member board of directors of the holding company of the new joint venture company and will continue to play a role in the joint venture corporate governance. In addition, a dedicated quality control committee led by a representative of Metro Group will be fully involved to monitor and ensure that the joint venture company continues to meet Metros global standards in terms of quality and operating standards.

Wumart Group will further improve the operational efficiency of Metro China and optimize customersshopping experience through a multi-point proprietary operation system. At the same time, Wumart Group and multi-point will bring digital retail expertise that integrates offline and online services and technologies, and will help Metro China to enhance its digital capabilities and accelerate the development of Chinas emerging retail market.

For more details, as of the time of publication, Metro, Wumart and many other aspects did not reply to the reporter, and the reporter will continue to pay attention.

Wumart intends to control Metros China business and Germany will receive more than 1 billion euros in revenue.

It was finally clear on the evening of October 11 whether Metros Chinese business was for sale or not.

First Financial Reporter learned from Metro that Metro Group and Wumei Science and Technology Group have reached a final agreement and will establish a joint venture company. According to the agreement, Wumart Group will hold 70% of the shares in the initial stage of the joint venture and Metro Group will hold 20% of the shares. The remaining 10% of the shares are currently held by minority shareholders in the Metro China Joint Venture and they intend to sell all 10% of the shares through another independent process. That is, Wumart Technologies Group will ultimately hold 80% of the joint venture company and Metro Group will hold 20% after all relevant transactions are completed.

Metro disclosed that after the completion of the transaction, Metro Group is expected to receive more than 1 billion euros in net revenue. The deal valued Metro Chinas companies at 1.9 billion euros. Both parties are expected to complete delivery by the second quarter of 2020 at the latest. Metro Groups M&A process is consulted by Citibank Global Markets European Group and JPMorgan Chase Securities, while Baker McKinsey Law Firm provides legal advice. Rothschild & Co., Paul Weiss, Junhe and Deloitte provide advice to Wumart Group and other firms.

Maidelong Brand Maintains Independent Operation

Metro told First Financial Journalist that by setting up joint ventures, Wumart Group and its technical partners, and Metro Group will be able to play their respective leading positions in the market, and their leading expertise in the wholesale, retail and digital fields, to accelerate the development and digital transformation of Metro China. Metro China has entered the Chinese market since 1996. Its 97 stores in China serve 17 million customers with high-quality food and non-food products, which laid a solid foundation for this collaboration. At present, Metros business in China has many complementary channels, including O2 O, fast-growing food distribution channels and welfare gift channels.

Zhang Wen, founder and chairman of Wumart Group, said: We are very happy to cooperate with Metro Group through the establishment of a joint venture company. We fully agree that Metro China operates independently and maintains a management team led by Kant, President of Metro China.

We will support Metro China in achieving its goal of becoming a leading all-channel food supply expert in China, said Zhang Feng, CEO of Multipoint. We believe that we can help Metro China achieve rapid business growth and efficiency improvement, and enhance customer experience through online and offline digital solutions by utilizing multi-point mature and advanced digital capabilities.

First Financial Journalist understands that Metro China will continue to operate independently under the Metro brand in the future, while the headquarters of the new joint venture company will remain in Putuo District, Shanghai. The new joint venture will maintain the current size of its stores and all commercial operations, while continuing to implement the planned development of new stores. In addition to retaining the current management team led by Kant, the joint venture company will retain the existing staff team. Metro Group will win two seats on the seven-member board of directors of the holding company of the new joint venture company and will continue to play a role in the joint venture corporate governance.

In addition, a dedicated quality control committee led by a representative of Metro Group will be fully involved to monitor and ensure that the joint venture company continues to meet Metros global standards in terms of quality and operating standards.

Digital retail with additional codes

This is not the first time that Metro is going to sell its business in China. It has been reported that Ali is negotiating with Metro to buy a part of the Chinese business of the German retailer. The negotiations are still in the early stages and there is considerable uncertainty in the future. More sources said that before the acquisition of Darun Fat, Ali had talks with Metro, but after Ali acquisition of Darun Fat, the negotiations between Metro and Ali were temporarily ended. At that time, Ali said to the first financial journalist, No comment on market rumors.

It is not the first time that foreign retailers have sold stores or shares in the Chinese market. For example, in the near future. Suning Easy Buy (002024.SZ) announced that Suning International, a wholly-owned subsidiary of the company, intends to invest 4.8 billion yuan in the acquisition of 80% of Carrefour China. After the completion of the transaction, Suning E-Buy became the controlling shareholder of Carrefour China, and Carrefour Groups share-holding ratio dropped to 20%.

In recent years, with the high cost and fierce competition in e-commerce, there has been a huge pressure on the earnings of real retailers. We have seen that many retail enterprises have experienced a tide of closure. Some foreign retailers choose or withdraw from the market or sell their shares. For example, Easy to buy and Lotte are gradually withdrawing from the Chinese market, while Carrefour sells the controlling right of Chinese business to Suning. Choice in line with business logic. Metros move is understandable, depending on how the future receiver integrates. Senior retail analyst Shen Jun pointed out.

Speaking of future integration, Claude Sarrailh, CEO of Metro China, said: We are pleased to choose Wumart Group as a joint venture partner, which will enable Metro China to continue to develop on the basis of its existing achievements. Wumart attaches great importance to all assets of Metro China, including employees, operational expertise and systems. We believe that Wumart Group and many points will accelerate our new retail transformation and ensure that Metro continues to succeed in the rapidly changing and competitive Chinese market. We anticipate that our cooperation will achieve many significant synergies. We look forward to continuing to provide services to Chinese customers and further expanding our business through digital operations, new stores and other growth initiatives.

Wumart group will further improve the operation efficiency of Metro China and optimize the shopping experience of customers through its multi-point proprietary operation system. Wumart Group and many points will integrate offline and online services and technology of digital retail expertise, and will help Metro China to enhance its digital capabilities and accelerate the development of the retail market in China.

Source: Author of Economic Observatory: Zheng Fanxin Responsible Editor: Wang Honggui_NF7326