After spending a lot of money to win Metro, can Wumart really operate well?

The buzzing Metro acquisition finally came to an end.

On October 11, 2019, Metro Group, Wumart Group and Multipoint Dmall jointly announced that Wumart had signed a final agreement with Metro Group on the acquisition of a controlling stake in Metro China. Upon completion of the deal, Wumart will hold 80 per cent of the joint venture and Metro will continue to hold 20 per cent. Multi-point will become the technical partner of Metro China.

According to the agreement, Metro China will continue to operate independently under the Metro brand in the future, and the joint venture will retain the existing staff team in addition to the current management team led by Kant. Metro Group will win two seats on the seven-member board of directors of the new joint venture and will continue to play a role in the governance of the joint venture.

However, the two sides did not disclose the amount of the deal. According to a previous report by Reuters, Metro China's deal is valued at 1.9 billion euros. If 80% of Wumart's shares are all acquired in cash, the transaction is estimated to be worth 1.52 billion euros, or about 11.9 billion yuan. It is much more expensive than the 4.8 billion yuan Carrefour sold as SUNING.

After the completion of the acquisition of Metro, Wumart also formed the layout of the offline full-format scene of "Shang Chao + department store + hypermarket + convenience store". For Metro, after years of struggle in the Chinese market, it finally sold successfully and sold at a good price. This is a win-win "collusion".

01 Yonghui lost

Before the official results come out, Yonghui is obviously a louder party than Wumart. Especially after the failure of the acquisition of Carrefour, it is generally believed that Yonghui is bound to win this time, but it is clear that Yonghui's abacus has not begun.

Such a guess is not without reason. Compared with Wumart, Yonghui has more advantages in the main business of the supermarket. Yonghui ranked fourth on the list of the top 100 Chinese chains in 2018, while Wumart ranked eighth, and Yonghui's sales were more than twice that of Wumart.

Yonghui has been ploughing the fresh supply chain since its inception, and previous analysts believe that Yonghui is a retailer that strives to build an integrated upstream and downstream vertical supply chain. After the acquisition of colorful food fresh (mainly fresh B2B supply chain), Yonghui has made up for its shortcomings in the B2B supply chain, but all B-end supply chains eventually need to find stable customer resources and form a self-closed loop. From this point of view, Metro is exactly what Yonghui needs.

As we all know, Metro is a warehouse-style hypermarket, and the main customers are B-end customers such as units, small and medium-sized enterprises. Kant, president of Metro China, once said that 40% of Metro's sales come from professional B2B sales.

Moreover, Metro B end users, high stickiness, coupled with the membership policy, let Metro occupy an advantage in the B side. If Metro can be acquired successfully, then Yonghui's advantage in the B2B supply chain will be further strengthened.

But as a result, Yonghui failed to bid again. For this result, the general guess is that Yonghui is "out of money".

On September 17, the first interim shareholders' meeting of Yonghui supermarket passed the proposal on the securitization of supply chain accounts receivable assets of Yonghui Qinghe Commercial factoring (Chongqing) Co., Ltd., a wholly-owned subsidiary.

According to the information disclosed by the shareholders' meeting, Yonghui took Shanxi Securities as the manager and promotion agency, and set up the "Shan Zheng Huitong-Yonghui factoring supply chain 1p N Asset support Special Plan" to raise funds by issuing asset-backed securities. The total size of the storage shelves declared under the plan shall not exceed 2 billion yuan (including 2 billion yuan).

For this move, an industry insiders familiar with Yonghui Finance said, "this may well imply that Yonghui has no money." It does not want to use the group's money for Yonghui Financial to carry out business factoring, but to make it self-reliant. Yonghui also announced in the first half of this year that it would borrow 5.8 billion yuan from banks in order to expand Yunchao's business.

Combined with this acquisition, if Yonghui really spends 11.9 billion yuan to complete the bid, it will undoubtedly make Yonghui's cash flow even worse and will be a great drag on the progress of other businesses.

02 abacus of Wumart

What Yonghui values is obviously also what Wumart values.

According to the previous report of "the third Eye on Retail"Wumart has been developing B2B business since last year, and this business is carried by an Internet supply chain platform called chain Merchants.

It is reported that Wumart's B2B business is divided into two steps.The first step is to start with fresh and surrounding categories to provide food distribution for enterprise procurement, agency canteens and catering customers. The second step is to extend from fresh food to food and non-food, and finally to the whole category.

Food distribution is obviously Metro's strength. According to the financial report, Metro's food distribution business has maintained growth of more than 10% for three consecutive years, 10.5% in 2017, 11.4% in 2018, 17% in 2019, and will continue to grow by 20% in the next few years.

Its core own brands include AKA's soybean oil line, which sells 66 million litres a year, and AKA used to pre-sell 120000 cases of imported milk during Tmall's Singles' Day event.

After winning the bid, Metro's 95 shopping malls in 59 cities in China, as well as Wumart supermarkets and convenience stores across the country, will become the front positions for Wumart's B2B business. Metro's advantages in the supply chain will be brought into full play.

In addition, Metro has adopted the membership system since its entry into China, with complete customer data for 22 years. Among the 13 million members of Metro, the core is middle and high-end customers, accounting for 44%, which will become the future wealth of Wumart.

In this acquisition agreement, there is another phenomenon worth noting, that is the emergence of multi-point Dmall. According to the content of the announcement, Duodian will become Metro's technical partner in China, which is worth savoring.

As the chairman of Wumart, Zhang Wenzhong also participated in multi-point investment in his personal capacity, so he has a close relationship with Wumart for a long time. At present, the digitization of Wumart is mostly completed by multi-points. For Metro, its digital backwardness is also an important reason for its slow development in recent years. With the help of multi-point digital transformation, it will better promote the integration of Metro and Wumart business in the future.

In January this year, Kant, president of Metro China, told the media that he would not withdraw from the Chinese market and gave a specific "portrait" of Metro's ideal partner:First, it can make Metro closer to customers, increase digital drainage and customer access; second, it can help Metro improve rapidly in digitization, realizing the innovation of order implementation and delivery mode; and third, it can help Metro to obtain more marketable goods and improve the supply chain.

Now it seems that holding hands with Wumei can all be realized.

03 radical expansion

Zhang Wenzhong, who was good at investing in mergers and acquisitions before going to prison, once again played his old trick when he got out of prison in a low profile. In the past 2 years, in order to complete its layout in the full format, Wumart has reproduced its unique skill of investing in mergers and acquisitions.

In addition to this acquisition of Metro China, Wumart also bought 21 Lotte Matt stores for 1.42 billion yuan, joined the Chongqing department store reform for 2.7 billion yuan, and bought B & Q for 1.4 billion yuan. In October 2018, Wumart also took over 70-80 neighboring stores; in March this year, a number of China Resources Wanjia stores in Beijing were also taken over by Wumart.

Such aggressive business expansion has also led to the rapid growth of Wumart's assets and liabilities. By the end of June 2018, the total assets, liabilities and owners' equity of Wumart Group were 61.17 billion yuan, 33.338 billion yuan and 27.832 billion yuan respectively. The balance of short-term loans is 5.279 billion yuan, and the balance of non-current liabilities due within one year is 5.269 billion yuan. The company is facing greater pressure of spot payment. If you add in the purchase amount of more than 10 billion yuan, Wumart may face greater cash flow pressure in the future.

Fortunately, Metro is in much better shape than Carrefour's annual losses. In fiscal year 2017, sales increased by 2.7% to 20 billion yuan. Metro's sales in China are expected to grow 5.4% in fiscal year 2018, doubling the growth rate compared with the same period last year.

More crucially, under the healthy financial situation of Metro China, it can decide on its own debt-free investment of about Rmb200m-400m (2500-50 million euros) per year.

In other words, Wumart's acquisition of Metro China, in addition to paying the acquisition fees, can make a profit without further investment, while SUNING's acquisition of Carrefour also requires continuous investment to make up for Carrefour's operating losses.

In addition, unlike many foreign retail enterprises, Metro China has always insisted on buying land to build its own stores, rather than "renting". Over the years, Metro China has accumulated huge "real estate resources", and because it operates a warehouse format, Metro's single piece of land has a volume of more than 10,000 square meters, and now these land prices have increased countless times.

After the completion of the acquisition of Metro, Wumart has formed the layout of the offline full-format scene of "Shang Chao + department store + hypermarket + convenience store". However, from the perspective of China's Shang Chao pattern, Wumart's performance is not excellent in many aspects, such as store operation level or user experience. After spending a lot of money to win Metro, will Wumei really operate well? Everything remains to be tested by time.