With the planned sale of a majority stake in its Brazil business, Walmart Inc. continues to reposition itself abroad to focus on what it considers more promising markets.
Walmart will exchange 80% of Walmart Brazil for up to $250 million in contingent consideration, which is based on time and operating performance of the Brazil unit, from private equity firm Advent International Corp., a Walmart spokesman told S&P Global Market Intelligence. Advent will gain the 80% stake while Walmart will retain 20% of the unit. No cash will immediately exchange hands in the transaction he said. Walmart did not disclose a price for the deal.
Walmart will "continue to share our global retail experience" after the deal, contingent on regulatory approval in Brazil, closes, although Advent will make decisions regarding leadership for the unit, the spokesperson said.
The shedding of its Brazil unit is in line with the company's overall international strategy, David Silverman, a senior director at Fitch Ratings, said in an interview. Walmart has shifted focus internationally to fast-growing markets China and India, while pulling back from the U.K, and now Brazil, he said.
The retailer announced the sale of a majority stake in Asda Stores Ltd. to British retailer J Sainsbury PLC in April. Walmart also announced its plan to acquire a majority stake in India's Flipkart Online Services Pvt. Ltd. in May, which marks the retailer's largest deal in at least a decade.
"The Brazil deal is in line with Walmart's publically articulated discussions around their portfolio," Silverman said. "Their strategic initiatives center around prioritizing high-growth markets."
The Brazil deal will allow Walmart to focus its resources on markets that have "more long-term potential," said Charlie O'Shea, Moody's lead retail analyst, in a note.
"Similar to the Asda divestiture in the U.K., this decision regarding Brazil continues the reposition of international assets, and enables the company to make investments such as the Flipkart transaction in India," O'Shea said in the note.
Walmart CEO and President Douglas McMillon recently omitted Brazil when talking about the company's international markets in an analyst Q&A after the company's annual shareholder meeting June 1.
"If you step back and ask priorities, it's the U.S., Canada, Walmex — including Central America — China and India," he said. "Those are our priorities."
Walmart expects the Brazil deal to close later this year. The company anticipates a $4.5 billion hit in noncash losses as a discrete item for the second quarter from the deal, with a majority of that net loss coming from the recognition of cumulative foreign currency translation losses. While Walmart does not expect an ongoing material impact to EPS in the current fiscal year, it does anticipate a slight positive impact next fiscal year.
