Shanghai Bailian Group, China's biggest retailer, has stepped up its corporate restructuring by merging its two listed department store operators.

Shanghai Friendship Group Inc, in which Bailian Group holds a 27.3 percent stake, will merge with Shanghai Bailian Group Co Ltd through a share swap, the two Shanghai-listed firms said in separate statements to the bourse on Thursday.

Shanghai Friendship will also purchase 36 percent of Shanghai's Nextage Department Store and the entire stake of an investment firm held by parent Bailian Group. The combined injected assets are worth 4.7 billion yuan (US$705.07 million).

Bailian's parent holding in Shanghai Friendship will increase to 49.26 percent through the deal.

Following the announcement, A shares of both companies in Shanghai rallied to their daily caps of 10 percent when trading resumed on Thursday after more than three months' suspension.

China International Capital Corporation projected that, driven by the deal, share prices for both companies will have room to grow by 40 percent.

Shanghai Friendship will be renamed Bailian Group Co Ltd, while Shanghai Bailian will delist from the exchange when the transaction is completed, the statements said.

"The major intention behind the deal is to erase the overlapping business between the two companies and consolidate our group's retail business into one platform," said Xu Bo, vice-president of Bailian Group, at a press briefing in Shanghai on Thursday.

The completion of the transaction is subject to approval from Beijing authorities, Xu said.

"The consolidation will help Shanghai Friendship control the largest and most influential retail platform in China's largest consumer market," said Li Xiangfeng, an analyst at Tebon Securities.

Based on Bailian Group estimates, Shanghai Friendship's assets will rise 74.5 percent to 32.9 billion yuan after the merger. The revamped retailer's revenue is expected to reach 43.7 billion yuan by 2010 and 46.6 billion yuan by 2011. Its revenue in 2009 was 29.2 billion yuan.

The Shanghai government initiated the restructuring of State-owned retail conglomerate Bailian Group as early as 2004 by acquiring five local retailers, with the aim of competing with forays by foreign retail giants into China. The retail industry is expected to grow by more than 20 percent in sales in 2010, Bailian estimated.

The latest move will consolidate Bailian Group's two core businesses - supermarket chains and department stores - into a single entity and enable it to operate more efficiently and competitively, said Ma Xinsheng, chairman of Bailian Group.

The company also plans to add 10 more shopping malls, each 100,000 square meters large, in the next five years. These will mostly be located in Shanghai and its adjacent regions.

(China Daily November 5, 2010)