Dazhong Electronics Corp, China's fifth-largest electronics retailer, said yesterday it has unilaterally ended its strategic cooperation agreement with China Paradise Electronics Retail Ltd, a move that will intensify competition in the nation's home appliance retail sector.
"We have ended our pact to merge China Paradise and sought arbitration for the issue on October 17," said Song Hong, Dazhong's general manager.
The Beijing-based retailer signed a cooperation deal with China Paradise in April, agreeing to an eventual merger of the two companies through shares displacement within a year.
China Paradise, then the nation's third-largest home appliance retailer, paid a 150 million yuan (US$19 million) deposit on the merger, which Dazhong would keep if China Paradise did not fulfil its obligations.
The deal ran into difficulty when China Paradise merged with Gome Electrical Appliances Holdings Ltd, the nation's largest home appliance retailer. The two companies released a joint statement to the Hong Kong stock exchange last Wednesday confirming China Paradise shareholders had accepted the merger deal.
Beijing-based Gome said on July 25 it would pay HK$409 million (US$52.5 million) in cash for China Paradise and issue one new share for every three China Paradise shares.
China Paradise will become a subsidiary of Gome while its Hong Kong-traded shares will be de-listed when the deal is complete, the statement said.
"China Paradise's merger with Gome has nullified its agreement with Dazhong, as it was supposed to offer its own Hong Kong-traded shares for the merger deal with us," said Lou Shenguang, strategy development consultant for China Paradise.
Dazhong said it would keep the deposit from China Paradise and the result of the arbitration would be announced in four months.
China Paradise said last night that the company's merger with Gome did not violate the terms of its agreement with Dazhong as the two companies are entitled to complete the deal through their affiliated companies.
China Paradise said it could initiate legal action against Dazhong if it ended the merger agreement between the two companies.
Senior officials from Gome declined to comment on the issue.
Analysts said previously it would be difficult for Dazhong to accept the merger as it would mean joining with Gome, which also has a strong presence in Beijing and is currently Dazhong's largest competitor.
"Dazhong will continue to consolidate its leading position in Beijing after the deal," said Song, adding the company still welcomes co-operation with other players in the sector.
Dazhong, the fifth-largest home appliance retailer in China, has the largest market share in Beijing, the most affluent city in North China.
It currently has 65 outlets in the capital, almost the combined number of Gome and Suning Appliance outlets.
"We also seek potential co-operation opportunities to facilitate our expansion," said Lou, adding the company had contacted BestBuy, although the two have not yet begun talks. BestBuy, the largest electronics retailer in the United States, said earlier it was considering buying Dazhong as part of its efforts to speed its expansion into China's US$75 billion home appliance market.
(China Daily October 24, 2006)