(Yicai) Nov. 5 -- JD.com has won conditional approval from the European Commission to acquire German retail company Ceconomy under the Foreign Subsidies Regulation targeting unfair foreign state aid.

"This represents the final outstanding regulatory approval as set out in the offer document," Düsseldorf-based Ceconomy announced on Nov. 3. "With all offer conditions now fulfilled, Ceconomy and JD.Com will proceed to close the transaction within the coming days."

Germany, France, Italy, Spain, and Austria had previously granted foreign direct investment approvals for the deal.

"Our ambition is to support Ceconomy in accelerating its growth in a sustainable way, to further strengthen its competitive position in Europe and continue to innovate in an evolving retail market," noted Sandy Xu, chief executive of JD.Com. "This approval is positive news for the European retail market and its consumers."

"Together, we will accelerate our successful omnichannel retail platform strategy," noted Remko Rijnders, CEO of Ceconomy.

"Ceconomy's business model and strategy remain unchanged and form the basis of its accelerated growth," the firm pointed out. "The management board will continue to stay in charge of driving the company's business strategy and operations, and JD.Com has made binding commitments to safeguard the foundations that matter most, for employees, brands and stores alike."

Earlier, the European Commission said that its in-depth investigation found that JD.Com had received subsidies from China in the form of preferential financing, tax incentives and grants. The commission said these subsidies were liable to distort the European Union internal market, including by strengthening the logistics and technology capabilities the Chinese firm would make available to Ceconomy after the deal.

JD.Com rejected the accusations, with its spokesperson noting the company had not received foreign subsidies related to the transaction that could distort competition in the EU. The firm described the European Commission's statement of objections as a normal procedural step and noted it would cooperate with the review.

In addition, China called the investigation "undue extraterritorial jurisdiction." On Aug. 19, Chinese authorities reportedly told domestic entities not to cooperate.

To address the European Commission's concerns, JD.Com and Ceconomy made various commitments, including conducting intra-group transactions on market terms, such as JD.Com's financing of Ceconomy, and offering JD.Com's warehousing, logistics, and technology services to third-party retailers on the same terms as to Ceconomy. After market testing, the pair strengthened these commitments.

The European Commission concluded that the commitments fully and effectively remedy the distortion. The commitments run for 10 years, with an independent trustee monitoring them under the Commission's supervision.

The constructive approach of JD.Com and Ceconomy enabled commitments that effectively address the identified foreign subsidies, said Teresa Ribera, executive vice president of the EU.

In July last year, JD.Com announced a voluntary public tender offer to buy all issued and outstanding bearer shares of Ceconomy at EUR4.60 (USD5.18) apiece in cash, valuing the target at about EUR2.2 billion (USD2.5 billion). On Dec. 2, it had secured about 59.8 percent of the share capital and voting rights after the additional acceptance period ended.

Ceconomy owns consumer electronics retail brands MediaMarkt and Saturn. It mainly operates omnichannel retail, with more than 1,000 stores and around 50,000 employees in Europe. Its revenue rose 5.3 percent to EUR24 billion (USD27 billion) in the 12 months ended Sept. 30 from a year earlier, according to its preliminary financial report released on Oct. 27.

JD.Com has accelerated its expansion in Europe, with its European online retail business beginning to recruit international and Chinese outbound brands in the maternal and baby and toys categories in April last year. In March this year, it launched Joybuy, an online retail brand in the United Kingdom, Germany, the Netherlands, France, Belgium and Luxembourg, further growing its retail and logistics supply chain footprint.

JD.Com's latest deal is driven mainly by three considerations, Zhang Zhouping, executive dean of Bense Think Tank, told Yicai. First, it can leverage Ceconomy's existing local customer and brand relationships to shorten market entry time; second, it can combine its self-operated supply chain capabilities with the target's retail business; and third, it positions itself early in a European retail market that increasingly values fulfillment experience, he pointed out.

However, the acquisition may face near-term profit pressure and insufficient order density, Zhang stressed, noting that warehousing and delivery network efficiency could suffer in a fragmented market with limited orders.

JD.Com faces challenges in replicating its asset-heavy operating model in Europe, including order density, integrating the two teams, and local cultural, legal, and regulatory conditions, said Zhang Yi, CEO of iiMedia Research.

Editor: Martin Kadiev