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GOME Electrical Appliances Holding Limited to acquire the entire issued capital of Artway Development Limited for HK$11,268,000,000

Pushing ahead development of total retail ecosystem on all fronts

Hong Kong, 2015-7-28 — /EPR Retail News/ — GOME Electrical Appliances Holding Limited (HKSE stock code: 493; “GOME” or the “Listed Company”, together with its subsidiaries, “the Group”), a leading electrical appliances and consumer electronics retailer in China, today announced its proposed acquisition (the “Acquisition”) of the entire issued capital of Artway Development Limited (the “Target Company”), a company wholly-owned by the Group’s controlling shareholder. The total consideration for the acquisition stands at HK$11,268,000,000. The acquisition move underscores the controlling shareholder’s commitment years earlier in undertaking quality asset injections, and confidence in the development of the Listed Company. Upon completion of the Acquisition, the Listed Company will successfully complete the nationwide deployment of its O2M “Total Retail” network and its supply value chain covering procurement, logistics and after-sales services, putting GOME’s “Total Retail” strategy in full gear to accelerate the realization of the “building another GOME” goal by 2017.

The consideration will be satisfied in cash, new shares as well as warrants. These include HK$2.2 billion in cash, 6.2 billion new shares allotted and issued at a price of HK$1.39 per share, as well as warrants exercisable into 2.5 billion underlying shares at an initial exercise price of HK$2.15 per underlying share. The cash portion of the consideration will be funded from internal resources. The Acquisition is conditional on the Target Company and the controlling shareholder being granted the Whitewash Waiver and the approval from independent shareholders.

Create synergies to expand business on a national scale and accelerate penetration into fast growing regional markets, fortifying further GOME’s leading position in the industry GOME’s leadership in the electrical appliances and consumer electronic products retail market in the PRC will be strengthened further upon the Acquisition. With the injection of quality retail stores and creation of synergies in supply chain, GOME will take advantage of the growth potential offered by both the online and offline platforms to bring forth better total retail experience to consumers. The increase in economies of scale in supply chain and optimization of capital structure will create greater value and opportunities for shareholders. GOME also expects the acquisition to reap synergies from the integration and sharing of resources in retail sales operations, procurement, logistics, after-sales services, warehousing, information technology infrastructure and human resources. Other benefits include facilitating a more flexible fulfilment management, as well as cost savings in warehousing and distribution. These are vindicated primarily in the areas detailed as below:

1. Retail stores with Target Company are highly complementary; complete nationwide coverage of “Total Retail Ecosystem” Following the completion of the Acquisition, GOME will be able to realize its nationwide network coverage deployment, significantly extending its retail store network from 269 cities to 436 cities. The newly-added stores are primarily located in fast-growing second and thirdtier cities, which are highly complementary to the Group’s existing retail store network. Concurrently, the empowerment of the retail store network will accelerate the Group’s ecommerce development, promoting full integration online and offline. The Group will spearhead the creation of a “Total Retail Ecosystem” with comprehensive shopping scenarios and services for consumers, advancing the implementation of its “Total Retail” strategy.

The Target Company notably offers high-quality assets with immense growth potential, boasting a network of 578 stores located across 181 cities in the PRC. Most of them are located in Central and Western China, Bohai Bay and the Beijing-Tianjin-Hebei region forming part of China’s Economic Zones with significant governmental support. The latter includes the Silk Road Economic Belt, Greater Northeast Economic Area, Yangtze River Economic Belt and Beibu Gulf Economic Zone. Benefiting from the PRC’s macroeconomic growth and national policies such as the “One Belt, One Road”, “Western Development” and “Northeast China Revitalization”, the numerous stores under the Target Company are strongly positioned to seize the opportunities ahead to achieve rapid development, and deliver a new growth engine to the Group.

2. Total integration of logistics platform nationwide; being one of the largest socialized logistics network platforms for home appliances in the PRC The completion of the Acquisition will also enable GOME to upgrade its existing logistics network which covers 21 regional and 407 city distribution centers, by bringing together the listed and non-listed logistics arms. With the support of its 1,714 retail stores, the Group is poised to successfully complete its national logistics coverage deployment, forming a multidimensional logistics network with regional and city warehousing as well as national last-mile distribution coverage spanning more than 600 cities, 2,500 counties and 45,000 towns that can enjoy localized distribution and installation. The establishment of a comprehensive national logistics network encompassing “points to lines to planes” allows the Group to enhance its logistics services standard and efficiency, and expand further into third-party logistics services to create one of the largest socialized logistics network platforms for home appliances in the PRC. This will put the Group’s “Total Retail” strategy in full swing.

3. Rapid expansion of after-sales network at national level; ascend to become one of the biggest after-sales services network platforms for home appliances in the PRC With an after-sales service platform offering over 2,000 outlets across 400-odd mainland cities, GOME is currently the leading air-conditioner and television installation service provider in the PRC. It provides full process of after-sale services from installation, extended warranty, maintenance to home appliance recycling, with “24-hour turnaround guarantee”. The completion of the Acquisition will give the Group a first-mover advantage into the network of the newly-added retail stores, and let it leverage the market opportunities to fully develop its after-sales service network at a national level. GOME will hence be able to become one of the largest after-sales services platforms for home appliances in the PRC.

4. Hundreds of billions capacity of procurement platform; move to become one of the largest home appliances procurement platforms 3 On the procurement front, with the economies of scale achieved post-Acquisition, GOME will continue to increase product diversity and sharpen the competitive edge and bargaining power enjoyed by its procurement platform, through stronger synergies with suppliers. This will help lead to the formation of a mega home appliances procurement platform with hundreds of billions of capacity, making it the largest of its kind in the PRC with the provision of full range of services in terms of product types and prices. At the same time, the Group will strive to raise the proportion of its differentiated products in the portfolio with an aim to increase its overall margin level, further demonstrating the merits of its product differentiation strategy.

All in all, with the support of the fully integrated procurement platform, logistics platform and after-sales services platform post-Acquisition, GOME is destined to strive ahead and fulfil its highest service standard of “three deliveries/day, precise delivery, installation upon delivery” set for the industry in over 400 cities in the PRC, solidifying its three benchmarking pillars – low-price benchmark, service benchmark and IT benchmark – to heighten customer experience, satisfaction and loyalty in an all-round way.

Moreover, the Target Company will become a wholly-owned subsidiary of the Group upon the completion of the Acquisition. As such, the management service and purchasing service arrangements will be terminated and the Group’s number of connected transactions reduced, thereby streamlining its corporate governance. In addition, the Group is expected to benefit from potential savings in interest and tax expenses through more favourable financing terms, and the optimization of its capital structure.

Mr. Wang Junzhou, CEO of GOME, said, “The acquisition marks an important milestone in the history of GOME. As the retail store network of the Target Company and GOME are highly complementary, it is envisaged that the acquisition will further strengthen GOME’s total retail value chain and fuel its expansion in second and third-tier markets, and e-commerce development in particular.”

“With its far-sighted leadership of Board of Directors and the management, as well as under the national strategy of ‘Internet Plus’, GOME will continue to focus on data mining and bigdata driven targeted marketing and foster the integration of its online + offline + mobile terminal platforms. This will facilitate GOME to fortify its three benchmarking standards set for the home appliances retail market and provide consumers with the most comprehensive and the highest standard of services. The acceleration of the implementation of the ‘Total Retail’ strategy allows GOME to advance ahead towards its ‘building another GOME’ goal by 2017, creating greater value for shareholders.”

The operations of the Target Company are already being carried out by the Listed Company under relevant management arrangements, subject to payment of management fees to the Listed Company.


About GOME Electrical Appliances Holding Limited
GOME Electrical Appliances Holding Limited has been listed on The Hong Kong Stock Exchange since July 2004 (HKSE: 00493). The GOME Group was founded in China in 1987 and is engaged in the retail business of electrical appliances and consumer electronics in China. It is the leading retail chain of electrical appliances and consumer electronics and the leading retail chain enterprise in China.

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