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Lianhua buys Hualian stake

SHANGHAI supermarket chain operator Lianhua Supermarket Holdings has said it agreed to buy Hualian Supermarket as it attempts to further expand its presence in the Yangtze River Delta region.

Lianhua said it would acquire a 99.4 percent stake in Hualian from its parent, Bailian Group, for 488.8 million yuan (US$71.88 million) while Lianhua Supermarket Development, a subsidiary of Lianhua, would take the rest for 2.9 million yuan, Lianhua said in a statement filed to Hong Kong Stock Exchange late on Sunday. Lianhua will pay in cash.

Analysts said the merger indicated Bailian is set to reconstruct its supermarket business and Lianhua would gain substantial competitive advantages on completion of the deal. The deal is subject to government approval.

The merger between the two supermarkets has been talked about since 2003 when the Shanghai commercial flagship, Bailian Group, was established and became the parent of both Lianhua and Hualian.

''Lianhua's market share in the Yangtze River Delta region, especially in Shanghai, will further expand. And it will experience substantial growth in the franchise business in Zhejiang and Jiangsu provinces,'' the firm said in the statement. It will also strengthen its bargaining power when negotiating with its suppliers, according to market watchers.

Hualian's strong presence in the delta region would help Lianhua gain dominance in the area in line with Lianhua's market strategy to focus on eastern China. Lianhua, the largest supermarket chain operator in China, will run 5,268 stores across the nation, mainly in the delta region, after the deal.

''Lianhua will gain an improved supplier relationship,'' said Luo Kuangyi, an analyst at Northeast Securities. ''The deal will boost Lianhua's profit.''

Hualian's net profit soared 253 percent to 32.8 million yuan last year from a year ago.

Lianhua Supermarket rose 11.13 percent to a seven-month high in Hong Kong yesterday, versus a drop of 0.39 percent in the Hang Seng Index.


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