Walmart Inc’s Retreat From Retail Continues With Asda Sale
In This Article:
Walmart Inc. (NYSE:WMT) stock has had a very, very bad year so far in 2018. The shares are down nearly 11.5% while the Dow Jones average is down just 2%.
Helping that is a market belief that traditional retailing is dying. Walmart made another adjustment to this opinion over the weekend by selling its Asda supermarket chain in the UK to rival J Sainsbury plc (OTCMKTS:JSAIY) for $10 billion.
The deal gives Walmart $4.1 billion in cash and a 30% voting stake in the resulting company and comes 12 years after the company exited the German market. That money can go right to work, as Walmart is approaching a deal to buy a majority of Flipkart, an Indian e-commerce site, for $12 billion.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Target Amazon
There are two ways to analyze the deal.
One is that Walmart is trading a low-growth market in Europe for a high-growth one in Asia. But that’s belied by another, smaller deal, the sale of 80% of its Brazilian operations to a private equity firm, Advent International. Brazil is not a slow-growth market.
The other is that Walmart is trading traditional stores for online sales, as it continues to try and get its hands around the challenge of Amazon.Com Inc. (NASDAQ:AMZN).
The recent fall in Walmart has nothing to do with its organic results and everything to do with Amazon. Sales for 2017 were $15 billion higher than in 2016, after years of stagnation. Long-term debt has been cut, and the company had over $28 billion in operating cash flow last year.
But Amazon has become Walmart’s Great White Whale — and CEO Doug McMillon has become Walmart’s Ahab. He bought Jet.com for $3 billion to speed e-commerce growth and seemed to be making progress, until this past Christmas, when Amazon’s e-commerce growth outpaced WMT’s.
Walmart is also trying to shortstop Amazon’s health ambitions, with a move to buy Humana Inc. (NYSE:HUM). Humana’s market cap is $41 billion, and the shares are up 6% in the last month, since reports of those discussions began.
Humana would deliver millions of customers to Walmart’s existing in-store clinics and retail pharmacy, making the stores more of a destination than just a place to buy things. It could also greatly increase Walmart’s online sales. Amazon, meanwhile, would have to start in healthcare from scratch, alongside partners JPMorgan Chase & Co. (NYSE:JPM) and Berkshire-Hathaway Inc. (NYSE:BRK.A), although the three companies do have over 1 million employees between them.