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Report: Wal-Mart to buy Chinese chain

Wal-Mart has agreed to acquire a Chinese supercenter chain for about $1 billion in a move that would give the world’s largest retailer the biggest food and department store network in China.
/ Source: The Associated Press

Wal-Mart Stores Inc. is bidding about $1 billion for a chain of 100 hypermarkets in China in a deal that could vault it ahead of competitors to become the country’s biggest food and department store network, reports said Tuesday.

Wal-Mart plans to buy the hypermarkets from Trust-Mart, a Taiwanese company, The Wall Street Journal said, citing people familiar with the transaction.

The Financial Times, citing people close to the negotiations, said Wal-Mart had emerged as the leading bidder for the chain but said no agreement had been reached. The New York Times reported that Wal-Mart expects to close the purchase by the end of the year, but still needs government approval.

“We don’t have any comment on any of this market speculation,” said Jonathan Dong, a spokesman for Wal-Mart China.

Calls to Shanghai Trust-Mart Co. rang unanswered Tuesday. Staff at Taiwan’s Taichung-based Shing-Taik Group, a part owner of the retail chain, said they could not comment on the reports.

Foreign retailers are rushing to tap China’s fast-growing economy, large population and expanding middle class.

The Wal-Mart deal, if completed, would follow the Bentonville, Ark.-based company’s recent exit from both Germany and South Korea.

Such a deal would vault Wal-Mart past its rival, Carrefour SA of France, in the number of hypermarkets in China. A hypermarket combines a supermarket and a department store in a giant facility with a full line of groceries and general merchandise.

In March, Chinese state media reported that Wal-Mart was among several international retailing giants vying for Trust-Mart. Others named included Britain’s Tesco PLC, France’s Carrefour SA and Shanghai-based Lianhua Supermarkets.

Wal-Mart beat out Carrefour for the Trust-Mart purchase, the Journal said, citing people involved in the deal.

Trust-Mart was founded in 1997 by Taiwanese tycoon Winston Wang. The company has 100 outlets scattered in some 20 provinces, including inland cities that lag behind affluent coastal centers such as Shanghai and Beijing.

Wal-Mart has 66 stores in China and says it plans to increase in size fivefold in the next five years.

Wal-Mart’s purchase of Trust-Mart is structured to take place in phases, with Wal-Mart acquiring 31 stores initially, the Journal reported.

It said Wal-Mart will acquire the remainder of Trust-Mart’s stores over the next three years as each outlet meets various criteria, including compliance with fire codes.

Details of the payment were not reported.

With China’s economy growing more than 10 percent a year, the retail market is booming. Retail sales surged 12.9 percent in 2005 over the year before, to 6.7 trillion yuan ($847 billion). By 2020, industry forecasts say the market could expand to about $2.4 trillion.

According to a recent retail industry report by Jones Lang LaSalle, foreign retailers have flooded in following the wider opening of China’s retail sector to foreign competition, part of its commitments for joining the World Trade Organization in 2001. The report said that 1,027 retailers won permission from the Ministry of Commerce to do business in China in 2005, triple the combined total in the previous 12 years.

Carrefour is China’s biggest foreign retailer, with some 76 supermarkets. It expects to open about 20 new outlets in 2006.

A recent report in the state-run newspaper China Daily noted that the average Carrefour customer spends only about 110 yuan ($14) per visit.