M&A

A foot in both camps

Why Wanda has teamed up with Tencent and JD.com for new capital?

Wang-Jianlin-w

Wang: reason to feel relief?

Not so long ago Wang Jianlin had tasked his Wanda Group with winning battles on three epic fronts: to outgrow Simon Property to become the world’s biggest property firm by asset size (see WiC187); to counter Disney’s influence and become the flag bearer of China’s entertainment culture (see WiC327); and to wrestle with Alibaba for the lion’s share of the Chinese retail market (see WiC296).

But in a common mistake made by numerous Chinese tycoons, Wang too has punched above his weight. Over the past six months his property conglomerate has resorted to selling off key assets to stave off a liquidity crisis (see WiC395). As we pointed out in last week’s issue, in late January Wang made a public promise that his property conglomerate wouldn’t default.

But as he addressed the audience at that Wanda company event he must already have known some heavy duty reinforcements were arriving. On Monday he raised Rmb34 billion ($5.4 billion) by selling a 14% stake in Wanda Commercial Properties to investors that included internet giant Tencent as well as retailing majors JD.com and Suning. Sunac China, a property firm that had already acquired Wanda’s theme parks and tourism projects (Wang’s erstwhile “wolf pack” to hunt down Disney in China), also joined the consortium.

The deal will ease Wang’s imminent capital pressures, foremost a $5 billion funding gap payable in six months to old investors in Wanda Commercial. They had provided the financing that enabled Wang to take private the Hong Kong-listed unit in 2016, via a high-stakes gamble that real estate heavy Wanda Commercial could complete an A-share flotation before September.

(The equity purchase by the Tencent-led consortium has now valued Wanda Commercial at Rmb250 billion, as compared with its ‘delisted’ value of Rmb200 billion. The prospect of attaining a Rmb500 billion market valuation following a triumphant A-share return, however, now looks dim.)

The China Securities Regulatory Commission hasn’t approved a listing application from a property developer for several years (its reason: to prevent the local real estate market from overheating). Now Wang’s chances may have improved – as he won’t need to classify the listing candidate as a developer at all.

Wanda Commercial Properties will be renamed Wanda Commercial Management and it will no longer engage in fresh property development. Tellingly, its new name suggests the unit will instead be a brand owner and manager of properties (primarily its Wanda Plaza complexes). A more asset-light direction is a big strategic shift.

Wang is putting a brave face on matters. “This represents one of the world’s largest single strategic investments between internet companies and bricks-and-mortar commercial giants,” Wanda said in a statement.

That might not sound so odd coming from some people, but from a property tycoon who’d jostled for the past five years with e-commerce heavyweights over the future of China’s retail market, it sounds ominously like something of a concession speech.

Indeed in a famed television moment in 2012, Wang rebuffed a claim by Alibaba’s Jack Ma that shops and malls like his were a thing of the past. He even betted that if online consumption surpassed half of China’s total retail volume by 2022, he’d write Ma a Rmb100 million cheque (the split is now 15% online and 85% offline).

By joining with Tencent and JD.com, Chinese media believes Wang must have come to the conclusion that Wanda can no longer fight the war alone and that a solely bricks-and-mortar strategy may no longer be viable.

In fact, the online-offline divide has been less clearcut since August when Alibaba itself launched a new online-to-offline (O2O) strategy, which it has termed “new retail”. This essentially means providing Chinese consumers with a seamless O2O shopping experience.

The new plan has seen Alibaba enter into a flurry of deals with retailers, including a $2.9 billion investment in Sun Art, the biggest supermarket chain operating in China, as well as a controlling stake in Auchan Retail, a France-based retail group. This month it also completed a Rmb200 million purchase of a stake in the Fujian-based New Huadu Supercentre.

In response, Tencent has gone on a spending spree of its own. Last week, it unveiled plans to invest in French giant Carrefour’s China unit alongside local retailer Yonghui Superstores (also based in Fujian and a rival of New Huadu). It this week also invested Rmb10 billion in menswear retailer Heilan.

“Internet firms are competing for the best offline assets in the retail market,” National Business Daily noted. “Wanda Commercial is the last juicy meat left on the chopping board.”

Wanda has long been the go-to business partner for consumer goods brands looking for quick inroads into the Chinese market, thanks to its 238 giant Wanda Plazas across the country. But in this “new retail” era, Alibaba and Tencent may be set to replace Wang’s firm as the partner of choice for overseas firms looking to distribute their brands in China.

Meanwhile, Wanda has rebuffed the suggestion that it is seeking shelter under Tencent’s roof. After the news of its latest asset sale was announced, the hashtag “Wanda taking sides and standing in line” quickly went viral. The assumption: Wanda is now the junior partner in the Tencent camp which is taking on Alibaba’s ecosystem.

Wanda has insisted instead that its new internet partners – Wanda recently shuttered much of its own stuttering tech division (see WiC394) – will give it access to abundant online resources that will enable it to carry out what it terms a “new consumption” model in China.

This sounds pretty similar to Ailbaba’s “new retail” but Wanda claims its new pact is a win-win situation for both its bricks-and-mortar retail businesses and the internet companies – and will help achieve its goal of opening 1,000 Wanda Plazas across China within 10 years.

“Some media outlets have read it as Wanda ‘taking sides and standing in line’ in the face of internet titans’ ‘new retail’ competition,” Wanda said in a defiant statement on its official website. “We only pick our partners purely on commercial considerations… we will never need to ‘take sides’.”


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