The competition between the top two consumer electronic retailers in China is set to hot up.

Two days after Gome, the largest player, announced its fundraising plan, Suning Appliances, its archrival and the second largest player, yesterday signed an agreement with Laox to purchase a 27.36 percent stake in the struggling Japanese retailer.

Following the stake buy, Suning will become the largest shareholder in Laox and also gain access to the Japanese marketplace.

This is the first time that a Chinese company has bought a listed Japanese company.

Under the agreement, Suning will spend 800 million yen (US$8.38 million) to buy 66.67 million Laox shares at 12 yen each.

"The deal paves the way for Suning's overseas expansion. Laox provides a good platform," said Sun Weimin, president, Suning Appliances.

Earlier this year, the company rolled out its plan to go overseas, identifying Hong Kong as the first destination.

By the end of 2009, about 10 stores are expected to be set up and come into operation there.

Laox is a major consumer electronics retailer in Japan and has been in operation since 1930. However, it has been losing ground in the past nine years due to stiff competition.

By March, Laox had a capital of 6 billion yen. The company posted revenue of 41 billion yen in its 2008 financial year ending March. Laox had just 15 stores in June this year compared to 75 in 2008.

Suning has set two business targets for Laox. It intends to make Laox profitable again in the next one to one and a half years. The company also plans to expand Laox's network in Japan and source household appliances from China by utilizing Suning's local resources to save cost, said Sun.

According to Wu Meiyu, chain analyst from Guosen Securities, the deal is attractive thanks to the low price. The expenditure paid for the deal is 0.65 percent of Suning's net assets, and 0.079 percent of its market value.

"The deal is controllable. Suning will not be impacted much," Sun said.

Suning could also learn a lot from Laox in product design, product display, services and corporate management to increase its competitiveness in China, Sun said.

By the end of 2008, Suning had 850 stores, in first-tier cities and some second-tier cities. The company said last week that it plans to raise funds worth 2.8 billion yuan (US$409.86 million) by issuing 200 million new shares to private investors, in a bid to expand its network in second-tier cities and strengthen its logistics services. Zhang Jindong, Suning's chairman, will purchase about 9 to 12 percent shares.

Suning's archrival Gome said on Monday that it would raise HK$3.24 billion (US$428.05 million) by selling convertible bonds to American private equity firm Bain Capital LLC and new shares to existing shareholders.

The company's shares rose 69 percent to HK$1.89 on Tuesday when trading resumed after a nearly seven-month suspension, and continued to rise yesterday, by 2.65 percent to HK$1.94.

Gome has a market share of 40 percent in China's first tier cities and has the largest nationwide network covering 1,300-odd stores.

(China Daily June 25, 2009)