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Walmart Prunes Portfolio in Focus on Growth Markets

Walmart Inc. is selling an 85 percent stake in its supermarket chain Seiyu to American private equity firm KKR & Co. Inc. and Japanese e-commerce platform Rakuten Inc. for $1.65 billion.

The deal, once it closes in the first quarter of 2021 after garnering regulatory approvals, will have KKR—which made the purchase through its Asian fund—as the majority stakeholder with a 65 percent share, Rakuten at 20 percent, and Walmart retaining a 15 percent ownership stake. The three stakeholders will also have representatives on the board, with the Seiyu CEO eventually headed to Walmart in a new role.

Walmart has been trying to shed the chain for the past two years, after acquiring a 6 percent stake in 2002, and snapping up the balance in 2008.

The deal comes after Walmart sold its majority stake in U.K. supermarket chain Asda last month. That $8.79 billion deal allows Walmart to retain an unspecified minority investment in the company it acquired in July 1999 for $10.8 billion. And more recently, Walmart earlier this month agreed to sell its entire Argentina business to Grupo de Narváez.

Also, last month, Walmart completed the sale of its business to affiliates of private equity firm CriticalPoint Capital. Walmart acquired the operation in 2017 for $9 million. And it also sold its Bare Necessities intimates business in August. All these recent transactions follow the divestiture of digitally native brand ModCloth last year, when it also folded into the core platform.

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Investments in Seiyu and Asda have helped Walmart understand the grocery sector as it made entered the marketplace, and the investment has helped the discounter improve its online and digital operations.

But Walmart has also battled Amazon for market share in the U.S. and globally. Analysts believe the discounter has been rebalancing its portfolio so it can focus on international markets such as India and China that offer greater long-term upside.

Speculation on Wall Street is that Walmart will likely push to make deeper inroads into India, a growth market where Amazon has also set its sights. Most recently, Walmart was said to be in talks for a possible $25 billion investment in Indian conglomerate Tata Group’s big retail push through its planned super app. For Amazon, India has surpassed the U.K. and Germany to become its second-largest marketplace, after the U.S. market, according to Marketplace Pulse on Monday.

“We like Walmart’s decision to monetize Seiyu, while retaining a minority interest, board presence, and commercial sourcing relationship. Broadly, the decision is consistent with Walmart’s new, portfolio-based approach to its international businesses. The company is monetizing more mature businesses and/or less profitable businesses to free capital to invest in emerging areas and countries,” Joseph Feldman, retail analyst at Telsey Advisory Group, said. “The capital generated from the monetization of businesses is being invested in growth areas, such as Walmart Fulfillment Services, and emerging companies, such as, Flipkart, Dada-Nexus, and possibly TikTok, to generate solid returns over the medium term and keep Walmart ahead of the curve.”

Charlie O’Shea, Moody’s vice president and senior credit officer, described Walmart’s decision to sell a sizable stake in Seiyu as a “sensible strategic move,” adding that the mega retailer “has recognized that other markets such as India and China present greater long term growth and profit opportunities.”

Walmart in September said it was working on finalizing a deal to take a 7.5 percent stake in TikTok Global, the viral video app popular with Gen Z.