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Thailand's CP Group to merge hypermarket owners in overseas push

Consolidation of Lotus's and Makro seen adding to conglomerate's retail clout

Charoen Pokphand acquired British grocer Tesco's Thai and Malaysian operations and rebranded them as Lotus's in February 2021. (Photo by Akira Kodaka)

BANGKOK -- Thailand's largest conglomerate Charoen Pokphand Group will reorganize and merge operating companies of its Lotus's and Makro retail chains to create a stronger entity as the group eyes overseas markets.

The merger of the two hypermarket owners will help CP Group plot a more efficient growth strategy while giving the merged entity more clout when it launches overseas.

"Retailing is a global opportunity for Thailand and a sector where we can be successful on the international stage," said Suphachai Chearavanont, CEO of the group and chairman of Makro operator Siam Makro. "These changes will streamline decision-making and, among other benefits, give Siam Makro and Lotus's the agility to succeed in the international arena."

The CEO is the third son of Dhanin Chearavanont, Thailand's richest man.

CP Group has its roots in the livestock business but has since expanded into mobile telecommunications and property development. Its major presence in the country's food supply chain, which now includes retail sales, has remained an important part of the conglomerate's business.

According to a statement Siam Makro released on Aug. 31, the merger will strengthen the group's hypermarket business and support long-term strategies to become a leader in the retail and wholesale markets.

In March 2020, the group agreed to purchase the Thai and Malaysian operations of British grocer Tesco for $10.57 billion. The deal was approved by Thailand's competition watchdog in November, with the stores rebranded as Lotus's in February 2021.

The purchase marked the return to the group of what senior chairman Dhanin described as his own "child." Lotus's was originally formed as the Lotus Supercenter chain in 1994 under his leadership. But CP had to sell the important asset after the Asian financial crisis in 1997, a fate that befell many other ASEAN conglomerates at the time.

The group sold 75% of Lotus Supercenter to Tesco in 1998 and the rest in 2003. "To protect CP Group, I made a momentous decision," Dhanin wrote about the sell-off in a serialized autobiography published in Nikkei Asia in 2016. Makro was reacquired in 2013 after being sold to Dutch group SHV as a result of the crisis.

Thanks to the repurchases, CP Group now claims roughly 60% of the Thai retail market according to Euromonitor data, as well as 15% of the Malaysian market.

Thailand's Trade Competition Commission approved the deal with certain conditions, including a three-year ban on any acquisition in the same sector. The ruling has made it difficult for CP to seek further inorganic growth at home, prompting it to look overseas. The group already has a total of 337 retail and wholesale businesses in China, Malaysia, India, Cambodia and Myanmar under multiple brands, according to another statement released by the group on Wednesday.

Elsewhere in the group, CP All -- sole operator of 7-Eleven convenience stores in Thailand -- opened its first outlet in Cambodia on Monday, with more to come by the end of the year. CP All also plans to open stores in Laos by around 2022.

The Lotus's and Makro merger will take the form of a share swap. Siam Makro will acquire C.P. Retail Holding, -- owner of the Lotus's chain -- for 217.9 billion baht ($6.7 billion). Siam Makro will transfer 5.01 billion new shares at the offer price of 43.5 baht per share to C.P. Retail Holding, which is expected to be dissolved. The new shares will account for 51% of the issued shares in the future.

"We aspire to become a regional player with scale," said Suphachai in a response to Nikkei Asia's written query. "This transaction will lead to a more effective supply chain management for better quality, business continuity, and fulfillment of our sustainability commitments. Digital infrastructure can be shared, leading to digital transformation that incorporates automation and AI," he added.

C.P. Retail Holding is held by three companies in the group: CP All, Charoen Pokphand Holding and C.P. Merchandising. The merger will raise the shareholders' holding in Siam Makro to a level that requires a tender offer, as Siam Makro is a listed entity.

The offer price will be 43.50 baht, with the transaction pending until agreement by Siam Makro and CP All shareholders. An extraordinary general meeting is scheduled for Oct. 12.

The acquisition will lower the proportion of Siam Makro's free float to the level where it violates its listing requirements on the Stock Exchange of Thailand. An additional 1.36 billion new shares will be offered to the public at 43.5 baht to keep Siam Makro listed.

Siam Makro's share traded at 52.25 baht on Wednesday on the Stock Exchange of Thailand, up 24.4% from Tuesday's close.

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