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Alibaba Now Claiming Offline Too, Through a $2.6 Billion Deal with Intime

After its incredible success in the online shopping market, Alibaba Group Holding Ltd. has decided to take a step forward and is now stepping into the offline domain as well by getting hold of the biggest department store chain: Intime Retail Group Co. for as much as 2.6 billion dollars. By acquiring the deal, it aims to deepen its roots in the brick-and-mortar stores.

At the moment, Alibaba is the biggest e-commerce industry and if it succeeds in buying out Intime, it will get a really strong hold on the online market. Additionally, it will also help the company to revolutionize the marketing industry which hasn’t adapted well to online shopping.

Partnership With Other Companies

Jack Ma is aiming to give new shape to the Chinese retail market by hiring more agents and thus, improving efficiency. Intime is just another checkpoint for Alibaba in the way of its progress. Besides Intime, Alibaba has also joined hands with different electronic companies such as Haier and Suning. Moreover, it has also expanded its online market through them.

Catherine Lim, a Singapore-based analyst at Bloomberg Intelligence stated:

“This deal shows that there is still value to brick-and-mortar stores, enough to interest e-commerce players”

She further added:

“What it’s shown is that department store chains are still relevant and of value. We could be seeing renewal of a sunset industry”

Founder of Alibaba and Intime; Shen Guojun will pay HK$10 for each of the Intime shares they don’t effectively possess, an arrangement that will require as much as HK$19.8 billion ($2.55 billion) including stock options. This will give a 42% premium over Intime’s previous close. After getting suspended for two weeks, the company’s stock increased up to 35% after continuing trade.

Also Read: Alibaba shatters all sales record by selling $17.7 billion on Singles’ Day

Intime has seen a great depression in sales since the second half of 2015. Alibaba will now own almost three-quarters of the company and will pay a premium for it. Calculations done by Bloomberg indicate that this deal values Intime at almost 18.7 times Ebitda of 1.39 billion yuan, which is approximately 201 million dollars for the 12 months which ended on June 2016. This compares with the 7.2 times of 414.6 million dollars in Ebitda that were paid for the U.S. retail store chain Belk Inc. by the Sycamore Partners in 2015.

The past years have not been kind to the department store owners as the poor management of the bazaars and shopping malls have directed customers towards the online shopping market. As compared to the U.S. market which is filled with strong chains of markets, the Chinese retail experience is significantly more divided and conflicting. According to Intime’s semi-annual report, the company has managed and worked on 29 department stores and 17 shopping malls as of last year in the ending days of June. The company has worked mainly in Zhejiang province but it has also delivered its efforts in Anhui and Beijing.

In the first half of 2016, profit warnings were issued by Maoye International Holdings Ltd and Lifestyle International Holdings Ltd. The former is a Shenzhen-based company while the latter is a Hong Kong based one. These companies operate the upscale Jiuguang chain in China. As rating agencies downgraded the ratings for Maoye, the sales also started to decline. By 2016, Intime’s shares had already fallen to 8% as compared to the 0.4% drop in the Hang Seng Index.

Alibaba is aiming to revolutionize the retail industry by joining hands with the few noted retail companies in the hope of modernizing the online and offline market. It is also aiming to help retailers manage their business and to provide them security through the use of technology.

Ray Zhao, a Shenzhen-based analyst at Guotai Junan Securities Co. said:

“Alibaba will be able to do more experiments with Intime in the retail sector and Intime’s valuation is relatively low now so it would be a good time to buy”

Investment in the U.S

China’s biggest online retailer is likewise extending its worldwide impression, most strikingly by opening up its Tmall market to U.S. and other retailers who are interested in selling their products to the Chinese customers. Jack Ma met with the Elected President of U.S. Donald Trump in order to discuss his ideas on how he can create more than 1 million jobs by adding 1 million small and medium businesses in the U.S. market through online retail.

In China, Alibaba has been the most noted and most used online store and has gotten the biggest share in the business. The Chief Executive Officer of Alibaba, Daniel Zhang became Intime’s chairman after a year of business with Intime.

In October, CEO Zhang said,

“The most important opportunity on the horizon is not growing online sales in isolation but rather helping traditional retailers upgrade into a brand new retail model”

Data recorded by Bloomberg shows that Alibaba has announced almost 35 deals in the past year and the acquisition of Intime is its first deal in 2017. Alibaba was about to make deals with other companies too which included Suning Commerce Group Co. and Haier Electronics Group and is still engaged with these companies. According to reports, Alibaba now owns 27.8% of Intime shares.

 

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