HNA takeover would be a gift for online also-ran

Reuters

By Quentin Webb

HONG KONG, Oct 30 (Reuters Breakingviews) - A takeover by HNA Group would be a gift for the also-ran online retailer Dangdang. The Chinese deal machine is in talks to buy a controlling stake in the local e-commerce outfit, Reuters says. A mooted price of 8 to 10 billion yuan, or about $1.2 to $1.5 billion, sounds rich.

Dangdang, which began as an online bookseller, is a longstanding fixture of the Chinese internet but a bit player nowadays compared to its giant rivals. It accounted for 0.5 percent of goods sold online to consumers in the first quarter, iResearch says. Alibaba's Tmall made up nearly 57 percent, and JD.com sold 26 percent.

And so a deal value of 9 billion yuan, at the midpoint of the mooted price range, would represent a huge uplift in a short space of time. Multiples-based valuations look pricey, too. Last year management projected the firm would make 329 million yuan of EBITDA in 2018. This implies an enterprise value of 27 times. That is roughly in line with the 28.5 times forward EBITDA at which the far larger JD trades, which seems generous given scale matters online.

The omnivorous HNA already has a huge range of interests, spanning airlines, leasing, hotels, logistics, property development, asset management, investment banking, and much else. A growing interest in technology - buying IT consulting firm Pactera, for example - makes sense, given how tech is reshaping so many industries.

But acquiring an e-commerce also-ran would not obviously add much to the wider HNA. There may well of course, be no deal - HNA must look at huge numbers of potential transactions - or there might be one at a lower price. But at the touted valuation, this could prove an expensive shortcut for gaining tech talent.

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CONTEXT NEWS

- China'sHNA Group is in talks to buy a controlling stake in E-commerce China Dangdang Inc in a deal that could value the online retailer at up to $1.5 billion, Reuters reported on Oct. 27, citing two people with direct knowledge of the matter.

- Dangdang, an Amazon rival in China, is also in talks with other potential investors, said the people, who declined to be identified as the matter was private. Dangdang told Reuters it has been approached by investors and has not accepted any offer. It said, without elaborating, that other details of talks with suitors were inaccurate. HNA declined to comment.

- The deal is likely to value Beijing-based Dangdang at 8 billion to 10 billion yuan ($1.2 billion to $1.5 billion), the people told Reuters. Financial terms are not yet finalised and the talks could still collapse, they said. HNA aims to own slightly more than 90 percent, one of the people said.

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