M&A

The final whistle

Suning finds new backers, but dumps soccer club

Jianlibao-w

Losing control: Zhang Jindong

GOME and Suning were China’s two most powerful retailers back in 2005. Dominating more than 80% of home appliance sales nationwide, their full-blooded rivalry was talked about as “the Battle of Mei-Su”, drawing comparison with the history of superpower tensions between the United States (Mei) and the Soviet Union.

Suning later became the industry’s undisputed leader after GOME’s boss Huang Guangyu – then China’s richest man according to a popular ranking – was arrested in 2008, eventually receiving a 14-year sentence for crimes including insider trading and bribery.

Regardless of Huang’s jailing, there was little rest for Suning’s founder and chairman Zhang Jindong. The rise of e-commerce pitted his bricks-and-mortar network against internet platforms operated by the likes of Alibaba and JD.com. He tried to respond with a business model that mixed one of the country’s biggest chains of stores with a growing presence in e-commerce. But its flagship firm Suning.com struggled to get much traction online and it is now a distant fourth with a 5% share or less. In financial trouble, it has already closed more than a quarter of its bricks-and-mortar stores.

We reported in January that the Shenzhen-listed firm has been lossmaking for six consecutive years, with the Nanjing-based group’s debts darkening the prospects of two leading football clubs in China and Italy that it owns (see WiC526).

Fans of Internazionale, currently top of Italy’s Serie A football league, have been concerned about Suning’s financial health for some time. And their fears were confirmed last week when news broke that Suning’s team in China – Jiangsu Suning, which won the Chinese Super League (CSL) last November – was being disbanded just days ahead of the new season’s kick-off tomorrow.

“We announce with great regret that Jiangsu club will cease operation of teams at all levels,” it said in a statement on Sunday, adding that efforts had been made with “great sincerity to transfer the club” to potential buyers over the past six months.

Suning said that it would continue to hunt for interested parties to “bring the club forward” but the sudden closure is a major embarrassment for the company and an awkward development for the CSL, which suddenly finds itself short of last year’s champions.

“This is not only a joke but a disgrace for Chinese football on the international stage,” Sohu Sports fumed, noting that the team should have been competing in the Asian Champions League, the region’s most prestigious tournament.

Perhaps Zhang Jindong has been more focused on saving his other businesses, with a white knight stepping in to rescue Suning.com, albeit with Zhang potentially relinquishing control of the firm he founded.

In a stock exchange circular also published on Sunday, Suning.com said it had agreed to sell a 15% stake to logistics services firm Shenzhen International and an 8% stake to Kunpeng Capital for Rmb14.8 billion ($2.3 billion). Both investors are backed by the Shenzhen government, which means that Zhang and connected parties now own about a fifth of Suning.com, while the Shenzhen state-owned enterprises control a 23% stake. Alibaba holds 19.9% but has not tried to raise its stake.

Suning.com says the two new investors bring skills in supply chain services and tax-free retailing, although the move is a new take on the ‘mixed ownership’ trend in which private investors are supposed to breathe life into state-owned firms.

The partial nationalisation will also shore up its position, with a new focus on the Greater Bay Area (it also announced the setting up of a South China headquarters in Shenzhen). A new growth engine is clearly required to fuel the company in the era of “new retail”. But Suning will also have to contend with older foes like GOME, which confirmed last month that Huang had finally been released from prison. In his first public remarks since his arrest more than a decade ago Huang vowed to return GOME to its former glory in just 18 months. “In the new year, we will keep pushing forward and update our ‘Home Living’ strategy,” he wrote on the company’s WeChat account last week, adding that his company would strive to “create value” for the country and society at large…


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