Gome Electrical Appliance Holdings Ltd's plans to expand its network in northern China seem to have progressed, with reports that it has acquired a major stake in a key appliance retailer in Shandong Province.

Sanlian Commercial Co Ltd, a major appliance chain operator in the province, sold 27 million shares, or 10.67 percent, for 537 million yuan (US$75 million) to local firm Longjidao in an auction on February 14.

However, observers believed there was a string-puller behind Longjidao, which is a small company with a short history.

Shanghai Securities News quoted an unidentified source as saying that Gome, the country's biggest electronics retailer, has since bought the entire stake in Sanlian from Longjidao.

"Longjidao and Gome may have agreed on the deal before the auction,'' said Xu Wenwu, an analyst with China Galaxy Securities. "This is exactly the same way Gome acquired Dazhong Electronics Ltd," he added.

The Shanghai-listed Sanlian runs about 200 chain stores in Shandong.

Gome may have been targeting Sanlian's sales channel rather than its shell because it will cost more for a back-door listing, Xu said.

Acquiring existing appliance retailers has been Gome's strategy for grabbing the lion's share in the Chinese market.

Its major rival, Suning Appliance Co, has chosen to expand by opening more outlets. "Both of the two strategies can work well if the retailers can secure quality operations," Xu said.

Gome last year gained control of Dazhong by financing a 3.65-billion-yuan bid by Beijing Zhan Sheng Investment Co. In 2006, Gome merged with China Paradise Electronics in a US$680-million deal.

Suning has said it will have about 900 outlets across China by the end of this year.

(Shanghai Daily February 22, 2008)