A CP Lotus store in Shanghai Photo: IC

Thai supermarket chain operator CP Lotus said Monday that its Chinese outlets will not be sold to Chinese hypermarket chain Wumart Stores Inc, a move which analysts said will do harm to both companies.

"Despite extensive negotiations in good faith, CP Lotus and Wumart were not able to make sufficient progress in reaching agreement on certain key terms for the proposed transactions," the Thai retailer, which is a unit of Thai conglomerate CP Group, said in a statement, noting that the previous acquisition deal will be dropped.

Wumart and CP Lotus announced on October 15 that the Chinese retailer will purchase the Thai chain's 36 stores in East and North China with HK$2.35 billion ($302 million). Wumart said in mid-October it had bought 9.99 percent of CP Lotus' shares, and CP Lotus bought 13.77 percent of Wumart's shares.

The share price of CP Lotus dropped by 4.27 percent to $HK 0.20 when trading closed Monday afternoon, and the price of Wumart's shares increased by 0.18 percent to HK$10.96 as of Monday.  

Li Weihua, a professor of the Franchise Research Center of the China University of Political Science and Law, told the Global Times Monday that the failure of the deal will be detrimental to both companies.

"Wumart was planning to expand its presence by purchasing the 36 stores, and CP Lotus wanted to upgrade its management by learning from Wumart," Li said. "Now none of this can be done."

CP Lotus needs to lower its price of HK$2.35 billion if it wants to find another buyer, Li said.

The deal was dropped because Wumart could not accept the compensation conditions demanded by CP Lotus' senior management, financial news portal caixin.com cited an unnamed source close to the transaction in a Monday report.

"Although Wumart guaranteed that it would not close any stores or lay off any staff, and it would keep all of CP Lotus' staff employed, [CP Lotus'] top management in China still wanted compensation," the source was quoted as saying in the report.

CP Lotus closed all eight of its Beijing stores for about two days in late October, because its employees went on strike over fears that they might get laid off if the CP Lotus chain was purchased by Wumart.

Li said more consumers will turn to online shops to buy groceries and daily necessities in the future. In terms of brick-and-mortar retailers, the most popular ones will be large shopping malls housing department stores and entertainment facilities like movie theaters, as well as small corner stores located near residential blocks, Li said.