Alibaba spends $2.9b to take on Wal-Mart in China

Alibaba Group Holdings Ltd's $2.9 billion deal to buy a slice of China's largest hypermart chain pits it against Wal-Mart Stores Inc in the world's largest retail arena.

China's biggest e-commerce company agreed to acquire 36 percent of Sun Art Retail Group Lt., which operates about 400 hypermarkets under the Auchan and RT-Mart banners.

As part of the deal, France's Auchan RetailSA will raise its stake in the Hong Kong-listed company to a similar level, and form an alliance with the internet giant to tackle the same Chinese food retail sector Wal-Mart's targeting.

Alibaba's essentially using Sun Art to quicken an assault on the $4 trillion brick-and-mortar retail arena, escalating competition with Wal-Mart in the hypermarts that sell everything from fresh produce to electronics. The world's largest retailer is focused on turning around a sluggish Chinese operation through a partnership with JD.com Inc. that could widen its customer base beyond cities, and expanding a network of Sam's Club stores targeted at consumers looking for premium and imported goods.

"Alibaba and Sun Art are forming a strong alliance: China's dominant e-commerce giant and its best hypermarket operator," said Veronica Wang, an associate partner with OC&C Strategy Consultants. "They can leverage the alliance and bring more benefits than Walmart and JD."

Alibaba's maneuver again shows how it's outspending Jeff Bezos in overhauling old-school shopping. It's the latest in a string of multi-billion dollar investments in physical retail that've deepened a lead over Amazon.com Inc., which kicked off its own foray into groceries by buying Whole Foods Market Inc. for $13.7 billion. Unlike that acquisition, Alibaba's taking advantage of a years-long revenue deceleration and uncertain prospects to get Sun Art on the cheap, at a 24 percent discount to its most recent valuation.

Alibaba's bent on transforming retail by infusing stores with technology to better manage inventory and customer data.

Wal-Mart and JD.com too are doing the same, marrying online commerce with data and combining their network of warehouses and cold storage for same-day delivery to customers.

The US giant increased its stake in its Chinese partner to just over 10 percent last year, according to a regulatory filing, cementing their alliance.

But Sun Art now gets the technology and resources needed to take the battle to its deep-pocketed American foe. In return for a massive discount, investors in Sun Art - which had bet since February on a capital infusion - hitch a ride on a potential turnaround.

"Sun Art has a pretty good supply chain so cost-wise it might make more sense than Alibaba doing everything from scratch," said Julia Pan, an analyst at UOB Kayhian.

Bloomberg