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China's biggest home appliance retailer, Gome Electrical Appliances Holding Ltd, has clinched a deal to acquire its rival China Paradise Electronics Retail Ltd, according to the Shanghai Morning Post.

Gome's cash and share swap offer has been accepted by China Paradise's management and the value of the deal will be more than HK$4.94 billion (US$618 million), an unnamed source told the newspaper.

Gome is reported to have offered one share and an additional cash amount for every three shares in China Paradise.

China Paradise, the nation's third-biggest player in the sector, would maintain its Yolo brand after the acquisition, while its merger agreement with Beijing Dazhong Electrical Appliances, the fifth-largest player in the sector, remains effective.

Officials from the two companies declined to comment, but both confirmed a press conference concerning the issue would be held today.

The deal between Gome and China Paradise is expected to create a chain worth 80 billion yuan (US$10 billion) in sales revenue annually and more than one-tenth of the market share.

Gome originally offered one new share for every three shares in China Paradise, which would only have given a 3.3 percent premium for the latter, according to the last traded prices of the two companies.

China Paradise's shares were suspended from trading last Monday at HK$2.05 (26 US cents) per share. Trading in Gome stock was halted on Tuesday at HK$6.35 (81 US cents).

Based on the last traded prices of the two companies, the deal would value China Paradise at HK$4.94 billion (US$630 million) before adding in the cash element.

It was reported the proposal was rejected by China Paradise as the Shanghai-based company asked HK$9.8 billion (US$1.26 billion) for the deal. Gome then sweetened its offer by adding a cash element, but the detailed sum was not revealed.

Analysts say Gome would be able to expand its presence in the affluent area around Shanghai after the acquisition. Shanghai-based China Paradise has over 60 percent of the city's market, according to a report by UBS Securities Asia Ltd.

The alliance would also lend Gome a network edge that may take its competitors several years to catch up to, including foreign players with much deeper pockets.

Suning, China's No 2 home appliance retailer, has some 350 outlets, with annual sales of over 30 billion yuan (US$3.75 billion).

The Nanjing-based company announced over the weekend that it would move its headquarters to Shanghai soon to help its expansion in the economic hub of the nation.

In the meantime, Suning will also expand across the country to achieve an economy of scale. It aims to open 1,500 outlets in five years, as well as strengthen its human resources, logistics and customer services.

Best Buy, the biggest consumer electronics chain in the United States, spent US$180 million to acquire Jiangsu Five Star Appliance in May. And it opened its first mainland store in Shanghai last month.

(China Daily July 25, 2006)