Most people are focusing on Alibaba in the new announcement of its major new logistics tie-up with leading home appliance maker Haier (HKEx: 1169), so I thought I would take a different approach and focus instead on the underappreciated Haier. Actually, I should clarify and say that Haier was formerly underappreciated, as investors quickly discovered its shares after announcement of the $360 million tie-up, bidding the stock up to a 14-year high on optimism about the new partnership. I’ve always been quite positive on Haier, one of China’s top brands in home appliances, and think this new venture continues its tradition of carefully considered partnerships with good chances for success into new areas.
Before we go any further, let’s quickly recap the highlights of this major new tie-up, which is part of Alibaba’s announcement earlier this year that it would invest 100 billion yuan ($16.4 billion) to build up its logistics capabilities over the next few years. (previous post) Unlike its main competitors that operate their own online stores, Alibaba operates online “malls”, which are platforms where third-party merchants can set up stores to sell to online shoppers. Thus the massive logistics investment was aimed at helping merchants on Alibaba’s sites to better serve their customers, since such merchants are usually small and lack the resources for such investment.
Under their new tie-up, Alibaba will invest a total of 2.82 billion yuan in Haier’s Hong Kong-listed unit, Haier Electronics Group. (English article; Chinese article) The deal will give Alibaba a 9.9 percent stake in Goodaymart, Haier’s online marketplace that will form the basis of the 2 partners’ new joint venture. The tie-up will see Alibaba purchase convertible bonds worth HK$1.3 billion ($170 million), which can later be changed into shares of Hong Kong-listed Haier or 24 percent of the joint venture company.
The joint venture will give Alibaba access to Haier’s extensive distribution channels for delivering its large home appliances to cities throughout China. At the same time, Haier will gain access to Alibaba’s extensive connections and experience in the e-commerce sector, which is rapidly expanding to become the preferred way for many Chinese consumers to make their purchases. That should help Haier to improve the e-commerce experience for its customers, distinguishing itself from rivals like Gree (Shenzhen: 000651) and Hisense (Shanghai: 600060), as well as from the many online third-party stores that sell its goods.
The deal is just the latest in a series of well-conceived tie-ups by Haier over the last few years, as it looks to expand outside its home China market and also to keep up with technology trends. In one of its latest moves, Haier announced it would team up with leading portal operator Sina (Nasdaq: SINA) to develop smart air conditioners that could be operated remotely over the Internet by consumers using their accounts over Sina’s popular Weibo microblogging service. (previous post)
Last year Haier also purchased New Zealand appliance maker Fisher & Paykel, gaining a valuable brand that was making a comeback after a restructuring. (previous post) I commented at that the time that the Fisher & Paykel deal looked like a smart business model for other Chinese companies to follow, as it marked the purchase of a healthy company with good growth prospects rather than the cheap, sickly firms that Chinese firms often target in their global M&A.
This latest Alibaba tie-up just reaffirms my previous assertion that Haier is a good company to watch, relying on a well-conceived model of mostly organic growth combined with strategic tie-ups to enter new areas like foreign markets and the online space. Accordingly, it’s quite likely we’ll see more upside for both its Hong Kong- and China-listed shares in the next few years, as it builds its position as both a Chinese and future global leader in the household appliance space.
Bottom line: Haier’s new tie-up with Alibaba represents the latest intelligent move for the appliance maker, as it uses selective tie-ups with strong outside partners to expand into new areas.