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Walmart to Book US$4.5bn Loss on Brazilian Sale

06/05/2018 - 12h27

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FINANCIAL TIMES

Walmart has sold a majority stake in its Brazilian business at an estimated US$4.5bn loss, marking the latest step in a strategic shift that has seen the US retailer become more of an investor than an operator in foreign markets.

In April, Walmart merged its UK-based grocer Asda with bigger rival J Sainsbury, in a deal that will give the US retailer a 42 per cent stake in the combined company. A few weeks later, Walmart revealed plans to buy a US$16bn stake in Flipkart in India, a key battleground with Amazon for the future of ecommerce. 

The Arkansas company did not disclose the financial terms of the sale of an 80 per cent in Walmart Brazil to Advent, a São Paulo-based private equity group.

But Walmart said it would record a US$4.5bn non-cash loss in the second quarter, which it attributed to the declining value of Brazil's currency. It said its ultimate loss "could fluctuate significantly" if the exchange rate changes before the deal closes. 

The decision to partner with a local company in Brazil was the result of a "thoughtful and deliberate review of Walmart's international portfolio", said the company, which has been scaling back efforts to replicate its US model overseas.

Walmart will retain a minority stake in Brazil, "giving our Brazil business the best opportunity for long-term growth", said Enrique Ostale, chief executive of Walmart Latin America, UK and Africa.
 
"We believe that with our local market knowledge and retail expertise we can position the company to generate significant results," said Patrice Etlin, a managing partner at Advent International in Brazil. "We plan to invest in the business, work with the Walmart Brazil management team, associates, Walmart and our industry advisers to create a more agile and modern company."

Nacho Doce - 16.fev.2016/Reuters
Walmart Store
Walmart Store

Despite the expense associated with the sale, Moody's called the action "credit positive". 
"Similar to the Asda divestiture in the UK, this decision continues the repositioning of the international assets," said Charlie O'Shea, Moody's lead retail analyst. These deals enable Walmart to invest in places with "more long-term potential", such as India, he said. 

Walmart's stock has fallen 14 per cent this year, as a slowdown in US ecommerce sales growth has shaken investors. Analysts have also been sceptical of its Flipkart deal, which Walmart warned would hit full-year profits by 25 to 30 cents a share this fiscal year, and 60 cents a share next year. 

Walmart entered Brazil 22 years ago, and has more than 400 stores, which made US$6.7bn in sales last year - a small portion of the company's US$500bn in annual revenues.

Walmart exited Germany and South Korea in 2006, and shut its Moscow office in 2010 only a few years after opening, saying at the time it could not find an attractive deal to enter Russia.

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