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Alibaba Strikes $3.6B Deal For China’s Hypermarket Sun Art

support@smarteranalyst.com (Ben Mahaney)
·3 min read

Alibaba Group will invest about $3.6 billion to ramp up its stake in hypermarket operator Sun Art Retail to 72% in a bid to strengthen its footprint in China’s retail sector.

As part of the deal, Alibaba (BABA) will buy 70.94% of equity interest in A-RT Retail Holdings (A-RT) from Auchan Retail International and its subsidiary valued at about HKD28 billion ($3.6 billion). A-RT holds about 51% of the equity interest in Sun Art. Following the transaction, Alibaba will consolidate Sun Art in its financial statements.

The e-commerce giant, which first invested in Sun Art in 2017 as part of its new retail strategy, said that this investment will further integrate its online and offline resources in China’s retail sector. Sun Art operates 481 hypermarkets and 3 mid-size supermarkets in China, with a focus on strengthening its position through small and offline community stores.

“The alliance we formed with Auchan Retail and Ruentex was instrumental in building a robust infrastructure to create opportunities and value in China’s retail sector. Sun Art has achieved impressive results in its digitalization, and pursued promising synergies with businesses across the Alibaba digital economy,” said Alibaba CEO Daniel Zhang. “As the COVID-19 pandemic is accelerating the digitalization of consumer lifestyles and enterprise operations, this commitment to Sun Art serves to strengthen our New Retail vision and serve more consumers with a fully integrated experience.”

Today, all Sun Art physical stores in China have been integrated into Alibaba’s Taoxianda and Tmall Supermarket platforms, providing delivery via collaboration with other key businesses across the Alibaba ecosystem, including Ele.me and Cainiao, to broaden product selection and access.

Alibaba has already served investors well with its shares surging 45% so far this year as stay-at-home mandates during the outbreak of the coronavirus pandemic forced more and more people to shop online and change their purchase preferences. (See Alibaba stock analysis on TipRanks).

Following BABA’s 3-day virtual investor day Needham analyst Vincent Yu on Oct. 1 bumped up the stock’s price target to $330 (7.4% upside potential) from $275 and maintained a Buy rating, saying that the company’s competitive positioning in the China e-commerce market is strong.

“While profitability is still far away, offline retail remains an important piece of Alibaba's strategy to create synergies between business units and make Alipay a check-in portal for users' everyday shopping experience,” Yu wrote in a note to investors. “With Alicloud profitability & Cainiao positive operational cash flow on the horizon, we gained confidence in Alibaba's ability to consistently build out multi-growth engines.”

Turning to other Wall Street analysts, the bulls have it all. The Strong Buy consensus boasts 24 unanimous Buy ratings. That’s with a $328.86 average price target indicating that another 7% upside potential lies ahead.

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