Wal-Mart will face rigorous regulatory scrutiny from the Chinese government if its $1bn bid for Trust-Mart, the mainland retailer, is accepted by the company, lawyers said on Tuesday.
The US retailer has emerged as the leading bidder in a year-long auction for Trust-Mart, the second biggest foreign hypermarket chain in China, edging ahead of bids from Carrefour of France and a Chinese company.
However, Beijing’s attitude to big acquisitions by foreign companies has cooled over the past year, leading to long delays for some deals, and tougher new rules for foreign investment have been introduced.
Although the proposed deal would not involve buying a Chinese company, as Trust-Mart’s main shareholders are Taiwanese, lawyers said Wal-Mart would still face an intense and unpredictable legal review before the acquisition could go ahead.
“It is unavoidable given the current environment,” said Patrick Hu, a lawyer at the Shanghai office of Jones Day. “The deal will have to go through a lot of different government procedures.”
William Liu, a lawyer at the Shanghai office of Boss & Yong, said: “It will not be an easy walk for the two parties to get approval.”
Trust-Mart, which was founded in 1997, had sales of $1.4bn last year and has 100 stores in more than 20 cities around the country. This compares with Wal-Mart’s 66 stores in China and the 80 hypermarkets of Carrefour, which could lose its position as the largest foreign chain in terms of sales if the acquisition goes through.
Mr Liu said Wal-Mart would need to win approval from the Ministry of Commerce, which introduced new approval procedures for foreign acquisitions last month. The US retailer would also need the go-ahead from the local offices of the National Development Reform Commission, the top planning body in China, in the regions where Trust-Mart operates.
“Wal-Mart might become the largest [hypermarket operator] in China after acquiring Trust-Mart, so the Chinese government will have concerns over issues like antitrust and balancing the layout of retailers in each city,” Mr Liu said.
Foreign companies have stepped up their investment in the Chinese retail sector over the past year in an effort to tap the rapidly expanding middle-class. In accordance with China’s accession agreement to the World Trade Organisation, from last year foreign retailers were allowed to own their stores fully, rather than through joint ventures.