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A source said that Ping’an Group planned to sell all the shares of Yihaodian. According to the plan fixed in December 2011, American retailing giant Wal-Mart, which acquired 20% of the stake of Yihaodian from Ping’an several months before, could directly take over the 50% stake. 10% of the stake is given to the executives of Yihaodian as the stock option incentive. If the plan is carried out, Wal-Mart will become the con- trolling shareholder of this B2C company.
Yihaodian denied this saying. Its CEO Yu Gang referred to it as a “rumor” and said that the company’s shareholders have new plans of increasing their investment. However, an insider from Wal-Mart China said that the deal was likely to happen and an insider from Ping’an Group said they indeed had the plant of quitting the investment of Yihaodian.
The Withdrawal Plan of Ping’an
Ping’an has its own reason to sell the stake of Yihaodian. This conforms to the style of Ma Mingzhe, board chairman of Ping’an – he never wastes time or money in an investment project which has not seen obvious positive results after two years.
Ping’an took the controlling right of Yihaodian in 2010. In the fifth month of that year, Ping’an spent 80 million yuan (USD 12.7 million) acquiring 80% of this Chinese online retailer.
This investment “saved the life of Yihaodian” at that time. When the company was initially founded, the founders planned to expand its size by investing a big amount of capital at first and then amortize the cost of technologies, operation and logistics before earning profits. They assumed that Yihaodian could see profits when its revenue reached 6 billion yuan (USD 950 million).
However, the online retailer only earned less than 100 million yuan in 2009 and the capital raised through the first round of financing had been run out. When Yihaodian was hard to survive the lack of capital, Ping’an came out and saved it, turning around its fate.
In the following year Yihaodian’s sales amount had a drastic increase from 40 million yuan (USD 6.33 million) in 2009 to 805 million yuan (USD 127.4 million) in 2010. The explosive development of ecommerce market in China was a reason, but Ping’an’s support for this company could not be ignored.
The most typical case is that the “Ping’an Wanlitong”, a comprehensive financial platform of Ping’an, was directly connected to Yihaodian, allowing the users of Ping’an’s financial services to shop in Yihaodian with their membership scores of the platform.
The huge purchasing volume of Ping’an also benefited Yihaodian a lot. Inside Yihaodian a special group purchasing department was founded to handle the orders from Ping’an. Even pens and notebooks the employees of Ping’an use are bought from Yihaodian.
It is once said that Ping’an contributed to 70% of Yihaodian’s sales. A source close to Yihaodian said that the proportion was higher in the past but was lowered a bit in 2011.
In comparison, the return Yihaodian gave to Ping’an was boring. Ping’an previously planned to use Yihaodian as an access to the online retailing market and integrate it with its medical and medicine network.
“But the integration did not go as Ping’an planned,” a former Ping’an employee said. The benefits Ping’an brings to Yihaodian greatly excelled Yihaodian’s return. Yihaodian only accounted for less than 10% of the total business volume of Ping’an Wanlitong and offered little help for the comprehensive financial services of Ping’an. In addition, the low margin and high logistics cost of Yihaodian asks for long-term investment from Ping’an.
That’s why Ping’an wanted to quit. Although it once planned to invest 200 million yuan (USD 31.7 million), it did not continue to make further investment after that. For Yihaodian’s need of expanding business, Ping’an chose to transfer the stocks instead of increasing investment.
The Chinese insurance giant began to sell the shares of Yihaodian in the first quarter of 2011. The first bidders were Tecent and Sequoia Capital but they could meet Ping’an halfway in the price. Ping’an priced Yihaodian at 2 billion yuan (USD 316.6 million) and rejected giving up the controlling shareholding right.
When the stock transfer stepped into the deadlock, Wal-Mart showed up and accepted the offer of Ping’an. In the middle of 2011, Ping’an sold 20% of Yinhaodian’s stock to Wal-Mart with 65 million U.S. dollars. The price per share was nearly ten times as much as the original price.
From then on, Ping’an and Wal-Mart began to talk about the continuous stock transfer and the plan was established at the beginning of December 2011.
But the final agreement has yet been signed and the process will take some time. Something unexpected might happen as well.
Backed by Giant?
How Ping’an’s quitting affect Yihaodian’s future?
Maybe it is too early to worry about the end of the “dividend brought by Ping’an”. The original contract between Ping’an Wanlitong and Yihaodian remains valid till 2014 and it is widely believed that Wal-Mart will sign an additional contract with Ping’an to maintain the tie between the online retailer and the insurance company.
If this really happens, the shareholding structure change is good for Yihaodian because it can get the support from two great companies.
Gong Wenxiang, an expert of ecommerce, said that Wal-Mart had built its ecommerce section in China. However, most of the executives came from Hong Kong and Taiwan and are not very familiar with the ecommerce market of the inland area. Yihaodian could help it deepen its presence in China.
In Gong’s opinion, Yihaodian specializes in the distribution of daily life commodities, which is the most difficult segment of China’s ecommerce market. The distributions of drinks, grains and oils have strong requirements of localization, meaning that a nationwide deployment needs to position purchasing teams in different places of China and spend a lot of money building storage bases. Meanwhile, these commodities have low profit margin and high logistics cost. Yihaodian, which has no self-owned suppliers and acts as a pure online seller pushed by capital, will have a long and thorny way ahead of it.
Gan Jianping from Qiming Ventures was not bullish on the pattern of Yihaodian. The low margin and high cost need great capital support and Wal-Mart is the most suitable candidate for taking over this business. The complete and matured supply chain, distribution channels and storage system of Wal-Mart, as well as its affluent capital, can support the development of Yihaodian. In Gan Jianping’s opinion, Yihaodian could act as a supplementary role of Wal-Mart’s ecommerce section after being controlled by this U.S. giant.
“Ping’an specializes in insurance and financial services. Therefore it and Yihaodian could not share all its information and clients. Wal-Mart, as a retail giant, could provide Yihaodian more support,” said Gan Jianping.
People attach great importance to the independence of Yihaodian since its stake was sold. It is known Ping’an gave the executives of Yihaodian enough independence. For example, Ping’an outsourced its own Internet SEM ads delivery, but Yihaodian’s online ads are made and delivered by itself.
If Wal-Mart becomes the controlling shareholder, will Yihaodian retain its independence? When Wal-Mart acquired 20% of the stake of Yihaodian, it was reported that the U.S. company wanted to stage a shakeup of Yihaodian’s management team, leading to the resignation of many senior executives.
It is noteworthy that Wal-Mart will give 10% stock option incentive to the management team of Yihaodian if it becomes the controlling shareholder. An insider from Wal-Mart said that Yihaodian could retain its independence in operation in the future.