China's top home appliance retailer, Gome Electrical Appliances Holding Ltd, is to take over rival China Paradise Electronics Retail Ltd.

Shares in the two companies have suspended trading in the Hong Kong stock market, pending the release of a joint announcement.

Hong Kong Exchanges and Clearings Ltd said in a statement yesterday the joint announcement is "in relation to a possible merger, by way of a possible voluntary general offer by Gome for the shares in China Paradise."

"The two companies have reached a merger agreement," a source close to Gome told China Daily, refusing to reveal further details.

Gome is expected to offer about one share for every three shares in China Paradise.

Gome spokesman He Yangqing refused to comment, saying an announcement, pending approval from Hong Kong Exchanges and Clearings Ltd, will be released shortly.

"The takeover will be much larger than US retailer Best Buy's US$180 million for China's fourth largest home appliance retailer Five Star," said Sun Luan, a retail analyst with China Securities.

Gome's market value is currently about HK$14 billion (US$1.79 billion), while China Paradise is worth about HK$5 billion (US$641 million).

Sources said the merger is a result of the dilemma raised by co-operation between China Paradise and Beijing Dazhong, the country's fifth biggest electronics retailer.

In April, China Paradise and Dazhong signed a co-operation deal, agreeing a merger through share displacement within a year.

The deal has run into difficulty, however. Under it, Dazhong has a right to a guaranteed 150 million yuan (US$18.75 million) from China Paradise, if the latter can not fulfill its obligations.

Editor: Yan