Alibaba has entered into a deal with the Sanjiang Shopping Club Co. regarding the purchase of one-third of the regional Chinese discount supermarket chain for more than 2 billion yuan ($290 million). The supermarket chain has more than a million members, and the news about the deal sent its shares up by its daily 10% limit on Monday, reports Bloomberg.

Alibaba
Image source: hinglish Notes – Flickr

No plans of buying additional stake

Alibaba said in a filing that it will hold about 32% of Sanjiang. It will buy 1.52 billion yuan of new shares, 438.6 million yuan in stock from existing holders and 188 million yuan in convertible bonds via a private sale. On conversion, the bonds would account for 3% equity. The convertible bonds can be converted to Sanjiang shares after six months of issuance, says Bloomberg.

In a filing, Sanjiang said that Alibaba has no plans of buying any additional stake in the company in the next 12 months. The two companies will work in procurement and logistics and plan to integrate business lines.

The threshold where a company is required to make a full takeover bid in China is 30%. Since Alibaba’s stake in Shanjiang will be higher than that, it will need approval from Sanjiang’s shareholders to waive this requirement, says Reuters.

Both Alibaba and Sanjiang to benefit from the deal

Sanjiang aims to use Alibaba’s platform to make the most of the increasingly competitive brick-and-mortar retail sector, as China’s economic growth is slowing down. Sanjiang is a local company that works on the principle of Sam’s Club and sells groceries at discounted prices. There are 160 Sanjiang stores across the prosperous eastern province of Zhejiang.

“Sanjiang shopping has an extensive offline network and experience in running retail stores,” the filing read.

Alibaba is making efforts to revamp traditional offline and online models, and this deal marks its latest acquisition of physical retail. To make its offerings available in physical retail, the retail giant has also invested in Suning Commerce Group Co. and Intime Retail Group.

Billionaire Jack Ma, the company’s founder, aims to replace distributors and middlemen to make it possible for stores to buy directly from suppliers with real-time demand and inventory as the basis, notes Bloomberg.

Alibaba released its second quarter earnings in early November, reporting a 55% rise in revenue. This was the second straight quarter of robust results for the company, indicating that it can still generate strong growth despite concerns regarding the health of China’s economy and retail sector.