Walmart Sells Majority Stake in Asda to U.K. Consortium for $8.8 Billion -- Update
October 02 2020 - 7:51AM
Dow Jones News
By Ben Dummett and Sarah Nassauer
Walmart Inc. agreed to sell its U.K. grocery-store chain Asda
Group Ltd. to a private investment group in a deal that values the
company at 6.8 billion pounds, equivalent to $8.8 billion, as the
world's largest retailer reorganizes its international businesses
in favor of bets on the growth of online services.
The retail giant is selling a majority of Asda to TDR Capital, a
Europe-focused buyout firm, and U.K.-based entrepreneur brothers
Mohsin and Zuber Issa. The deal marks the end to a monthslong
process that was temporarily interrupted this summer to meet
surging demand for food basics in the U.S. amid the coronavirus
lockdown.
A company spokesman declined to comment on the sale price.
Based on the current deal terms, Walmart expects to recognize a
noncash loss of approximately $2.5 billion, after tax, in fiscal
2021, the company said in a filing Friday. The deal is expected to
close in the first half of the next fiscal year, the company said.
The sale will reduce Walmart's earnings per share by $0.25 in the
first full year following the deal's close, the company added.
Walmart had previously tried to sell Asda to U.K. rival J.
Sainsbury PLC in 2018 in a deal that would have valued it at GBP7.3
billion. The country's competition regulator, however, blocked that
proposal last year, concerned the tie-up would reduce competition
and potentially spur higher prices for shoppers.
The current buyers aren't expected to face this problem since
the group doesn't own a grocery business in the U.K. that ranks
among the market's major operators.
In recent years, Walmart has shifted its focus toward building a
larger online and digital business to rival Amazon.com Inc.,
selling struggling international businesses and favoring regions
where executives believe there is potential for growth.
In 2018, Walmart sold its Brazilian business to private-equity
firm Advent International Corp. and bought Indian e-commerce
startup Flipkart for $16 billion. It is currently embroiled in a
complex global deal to partner with Oracle Corp. to buy an up to
20% stake in video-sharing social-media company TikTok, which is
owned by Chinese tech firm ByteDance Ltd. The Trump administration
has said it would ban the popular app in the U.S. if it isn't sold
to U.S. owners, citing national security concerns.
Asda is one of the U.K.'s biggest supermarket chains, overseeing
a network of more than 600 stores and gas stations. By acquiring
control of the division, the TDR group is betting in part on
industry expectations of the lockdown accelerating the move to
online shopping beyond even when the pandemic subsides.
In August, Asda said it aims to increase online capacity to up
to one million weekly slots in 2021 from an expected 740,000 by the
end of this year, recognition of the increased and sustained
appetite for online grocery shopping.
TDR and the Issa brothers already own EG Group, which operates a
gas station and convenience store network comprising more than
6,000 sites across Europe, parts of the U.S. and Australia. The
acquisition of Asda's rival business in the U.K. also adds to this
presence. Alternatively, the buying group could sell Asda's
gas-station network to help finance the deal.
The companies won't combine, said a Walmart spokesman. Walmart
will retain an Asda board seat after the deal is done, he said.
Walmart acquired Asda in 1999 for $10.8 billion in a bet to
double the size of its international operations. But sales have
largely struggled since then amid stiff competition from German
discounters Aldi and Lidl and other rivals such as Tesco PLC and
Sainsbury, pushing Walmart to pursue the sale.
The U.K. business, the second-largest international unit by
revenue, posted a 4.3% year-over-drop in sales to $29.2 billion for
the year ended Jan. 31, 2020. By comparison, the bigger Mexico and
Central America division posted a 5% rise in revenue to $33.4
billion.
At the same time, Walmart is expanding its operations in markets
that offer better growth prospects. In August, the supermarket
operator agreed to sell its stores in India to Flipkart, the
e-commerce startup it controls, to consolidate its operations in
the world's second-most-populous country. In 2018, Walmart bought a
77% in Flipkart for $16 billion and since then has increased its
position to an undisclosed amount.
Still by retaining a minority stake in Asda, Walmart will
continue to be connected to Asda's future performance.
Write to Ben Dummett at ben.dummett@wsj.com and Sarah Nassauer
at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
October 02, 2020 07:36 ET (11:36 GMT)
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