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Shanghai Yongle Electronics, one of the leading domestic home appliance retailers, is to buy the retail sector of Tsann Kuen, a Taiwan-based home appliance manufacturer.
Tsann Kuen (China) Enterprise Co Ltd announced yesterday that its five subsidiary companies signed agreements last Friday to transfer retail-related assets to Shanghai Yongle.
According to Tsann Kuen's statement to the Shenzhen Stock Exchange, Yongle will pay 143.8 million yuan (US$17.4 million) for the purchase.
"The deal is beneficial to both sides," said Sun Luan, an analyst from China Securities.
The fixed assets of the five companies, including 32 stores in Shanghai and Fujian Province, and goods in stock, are valued at about 200 million yuan (US$24 million).
Yongle got the firm for a good price, Sun said.
Meanwhile, the acquisition will help speed up Yongle's national business expansion.
According to a list of the top 30 chain stores published by the Ministry of Commerce earlier this year, Shanghai Yongle ranked after its rivals Gome, Suning and Sanlian.
By the end of last year, the retailer owned 106 outlets around the country, with sales of 13.2 billion yuan (US$1.6 billion) last year, much smaller than Gome's sales of 23.88 billion yuan (US$2.88 billion).
Previously focusing on the Shanghai market, Yongle has accelerated the opening of its stores in other areas, such as Beijing and Nanjing.
"Acquiring Tsann Kuen's retail business will help Yongle's expansion in other markets, especially in southern cities," Sun said.
It will also further strengthen Yongle's competitiveness in Shanghai.
"The move shows that the domestic home appliance industry has entered into a new stage, when big players compete to expand through mergers and acquisitions," said Sun.
Officials from Yongle could not be reached for comment yesterday.
"The deal is also good news for Tsann Kuen, as its retail business on the Chinese mainland has been making huge losses," Sun said.
More than ten years ago, Tsann Kuen entered the Chinese mainland market, building manufacturing bases in southern Fujian Province to produce small home appliances, such as steam irons, hair dryers, vacuum cleaners, and oven toasters under the brand Eupa.
The production business has made a profit from the beginning.
Last year, the home appliance production sector recorded a profit of 441 million yuan (US$53 million).
In 2003, Tsann Kuen planned to introduce its 3C (computers, communications and consumer electronics) stores, its successful business model in Taiwan, to the mainland market.
However, its retail business made a loss of 136 million yuan (US$16.4 million) in 2003, and 384 million yuan (US$46.4 million) last year.
It said the business failure was due to the difference between Taiwan's retail market and the mainland market, and its late entry into the hotly competitive mainland market, the company said in a statement.
"The company decided to readjust its business strategy. We will concentrate on research and development, the manufacture of small home appliances, and maintaining leadership in the sector," it said.
The company also stated yesterday that it may report a loss for the first half of the year, but this sale will improve the company's financial status and the company will remain profitable for the whole year.
Tsann Kuen's shares on the Taiwan stock market gained 6 per cent on Tuesday thanks to a report of the deal.
(China Daily July 7, 2005)
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