Wal-Mart nears deal for retailer in China

October 17, 2006|By NEW YORK TIMES NEWS SERVICE

SHANGHAI, China -- Wal-Mart Stores Inc., the largest retailer in the United States, is poised to become the biggest foreign chain in China with the $1 billion purchase of a major foreign-run Shanghai retailer, people briefed on the deal said.

The move is a large step for Wal-Mart's strategy in China, allowing the American retailer to more than double its presence in a country that, despite its size and growing middle class, remains largely untapped by foreign retailers.

The size of the acquisition of the Taiwanese-owned supermarket chain Trust-Mart is modest for Wal-Mart, but it is critical because the China market is becoming much more pivotal in the U.S. retailer's overall international strategy.

For Wal-Mart, China represents an opportunity to tap a vast and fast-growing market abroad while Wal-Mart is lagging elsewhere and has run into obstacles to growth at home.

"China is the only country in the world that offers Wal-Mart the chance to replicate what they have accomplished in the U.S.," said Bill Dreher, an analyst at Deutsche Bank Securities.

Wal-Mart expects to close its acquisition of Trust-Mart by year's end, but the deal is subject to the approval of Chinese authorities, a person briefed on the transaction said.

Competition is keen among foreign retailers in China, and the bidding attracted the world's top retailers. The deal puts Wal-Mart neck-and-neck with Carrefour, a giant French retailer that also bid for Trust-Mart.

Wal-Mart outbid Carrefour SA, Tesco PLC of Britain and one of China's large retailers, Lianhua.

The purchase highlights the staggering reach of Wal-Mart, which started in rural Arkansas 45 years ago and has become the largest foreign retailer in Mexico and Canada.

In numerous other foreign markets, however, Wal-Mart has been stymied, pulling out of Germany and South Korea, or has encountered stiff challenges, as in Japan, where it has struggled to gain market share.

By acquiring Trust-Mart, Wal-Mart would be able to match Carrefour and also compete with much bigger Chinese retailers, including China Resources and the Shanghai Brilliance Group, the country's largest retailers with more than $3 billion in sales and more than 8,000 stores combined.

Trust-Mart has more than 100 stores with 30,000 employees in more than 20 Chinese provinces, operating mainly at the low end of the supermarket chains.

China's economy is expanding 10 percent to 11 percent a year, making it by far the world's fastest-growing major economy.

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