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Sat, May 13, 2006 - Page 10 News List

Best Buy to control China's Five Star

FOOTHOLD The top US electronics retailer will gain a controlling stake in the Chinese chain of appliance outlets for US$180 million, giving bigger rivals a run for their money


Best Buy Co, the largest US electronics retailer, agreed to invest US$180 million for majority control of China's Five Star Appliance (五星電器) to gain a foothold in the world's most populous nation.

The purchase of China's fourth-biggest consumer electronics retailer will give Best Buy 136 stores in eight provinces, the Richfield, Minnesota-based company said in a Business Wire statement, without giving the size of its stake.

US and European retailers including Wal-Mart Stores Inc and Carrefour SA are expanding in China after the country relaxed laws at the end of 2004, enabling foreign companies to open stores without a local partner. Linking with Best Buy will help Five Star compete with local rivals such as Gome Electrical Appliances Holdings Ltd (國美電器) in the world's fastest-growing major economy.

"Best Buy will probably help Five Star to open more stores to compete with larger rivals," said Hu Hongke, a retail analyst at China Merchants Securities Co in Shanghai.

The US$180 million investment includes US$122 million of capital to be injected into the business, according to Best Buy's statement.

China's retail sales grew 12.7 percent from a year earlier in March, after climbing 12 percent to a record US$834 billion last year.

The Chinese government is encouraging consumer spending to lessen the economy's reliance on investment and exports for growth.

China's economy grew 10.2 percent in the first quarter.

Best Buy will still go ahead with plans to open its own stores in China this year after buying Five Star, Best Buy International chief executive officer Robert Willett said in the statement.

The US retailer said on March 31 that it plans to open an 8,000m2 shop in Shanghai.

China's consumer electronics sales are projected to grow by more than 10 percent annually for the next decade, reaching US$100 billion in 2010, Best Buy said in the release.

Five Star's sales rose more than 50 percent to about US$700 million last year from a year earlier, according to the statement.

Gome, China's biggest home-appliance retailer, had 296 stores in the country at the end of March, according to the company. Suning Appliance Co (蘇寧電器), the second-biggest, had 224 outlets by the end of last year, according to its annual report.

For the fourth quarter ended Feb. 25, Best Buy's international sales rose to 12 percent of total revenue from 11 percent a year earlier, the company said in a filing with the Securities and Exchange Commission on March 31.

The Five Star transaction is expected to be neutral to Best Buy earnings next year, yesterday's statement said.

Five Star, based in Nanjing, sells air-conditioning, video and audio products, appliances and digital communication devices.

The company, founded in 1998, has more than 12,000 employees, according to the statement.

Wang Jianguo (汪建國) will remain chairman Five Star's board after the acquisition, Best Buy said.

"We have a high regard for Mr Wang and the culture he helped establish at Five Star," said Weimin Lu (呂維民), chairman and general manager of Best Buy China.

Five Star may shelve plans to proceed with a public share sale in Hong Kong after raising money from the Best Buy transaction, said Jack Yu, a retail analyst at KGI Asia Ltd in Shanghai.

The Chinese company plans to raise as much as HK$600 million (US$77 million) from an initial public offering in Hong Kong this year, China Business News reported on Jan. 17, citing an unidentified company official.

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