Wal-Mart Stores Inc (WMT.N) is considering making a bid for the Hong Kong supermarket business being sold by a company controlled by Asia's richest man Li Ka-shing, people familiar with the matter told Reuters.
Li's Hutchison Whampoa Ltd (0013.HK) conglomerate has set an August 16 deadline for initial bids for ParknShop, which it values at as much as $4 billion, sparking interest from corporate and private equity buyers.
Wal-Mart, the world's largest retailer, is working with a bank as it weighs its options for ParknShop ahead of next week's preliminary bid deadline, the people said.
Wal-Mart declined to comment. The sources declined to be identified because the discussions are confidential.
Last year, Wal-Mart announced plans to open 100 new stores in China over the next three years and create 18,000 jobs in an effort to boost its mainland China business. Wal-Mart opened its first China store in 1996 and now operates over 380 stores spread across various formats, including Supercenters, Sam's Clubs and Neighborhood Markets.
But foreign retailers such as Wal-Mart have found it challenging to manage growth in China. Sun Art Retail Group Ltd (6808.HK), a joint venture between Taiwan conglomerate Ruentex Group and privately held by French retailer Groupe Auchan SA AUCH.UL, is China's largest hypermarket chain.
While private equity firms were not initially invited to participate in the process, more recently KKR & Co LP (KKR.N) and TPG Capital have been invited to bid, the people said.
Other buyout firms including Blackstone Group LP (BX.N) have held talks with banks about financing a possible bid, they added.
KKR declined to comment, while Blackstone and TPG did not immediately respond to requests for comment.
Li's Hutchison Whampoa is being advised by Bank of America Corp (BAC.N) and Goldman Sachs (GS.N) on a strategic review of the ParknShop supermarket business that could lead to a sale.
DUOPOLY MARKET
Japan's Aeon Co Ltd (8267.T), China Resources Enterprise Ltd, Sun Art Retail, and Australian retailers Wesfarmers Ltd (WES.AX) and Woolworths Ltd (WOW.AX) are among the eight parties invited to the process and weighing bids, Reuters previously reported.
The auction is generating interest as it offers an opportunity to operate in a market that is dominated by two large players. Li's ParknShop and Singapore's Dairy Farm International Ltd (DAIR.SI) dominate Hong Kong's supermarket business. ParknShop has a 33.1 percent share and Dairy Farm has 39.8 percent, according to London-based Euromonitor.
Corporate buyers like Wal-Mart could use ParknShop as a platform to expand into China.
Wal-Mart CEO Doug McMillion has said previously that expansion into new countries is not Wal-Mart's main focus, as it is focused on making improvements to businesses in growing markets such as China and Brazil.
ParknShop, which operates 345 stores in Hong Kong, mainland China and Macau, earned HK$21.7 billion ($2.8 billion) in revenue last year, according to a recent statement from Hutchison. About 270 of the stores are located in Hong Kong.
Octogenarian Li, ranked by Forbes as Asia's richest man in 2012, is planning to sell the business to focus on Hutchison's health and beauty retail operations, which have a bigger global footprint and offer higher margins compared with the supermarket business, sources previously told Reuters.
Private equity firms have a long history of making profits from retail and consumer businesses, and the auction offers a rare chance for them to invest a large chunk of capital in Asia.
However, they may find the high valuation for ParknShop a challenge unless they can find partners for their bids. Private equity firms usually cannot invest more than 10 percent of a fund in one deal, to limit damages from a failed investment.
© 2017 Reuters All rights reserved.
