Monday 9 November 2009

Walmart has 'reconstructed' its group relationship with Asda by 'selling' it to its Leeds-based investment vehicle called Corinth Services Limited.

In an article in The Telegraph, a Walmart spokesman was quoted as saying that it had been done "for good financial management" reasons. He declined to comment on whether the move was tax driven, but said that all the companies were registered in the UK.

In the absence of further details from Walmart, the real issues for suppliers are why, and why now….?

Bearing in mind
- Asda has been underperforming profitwise vs Walmart global (Net Margin 2.8% vs 5.3%)
- Difficulties in scaling up in the UK because of competition legislation preventing Asda from acquiring a major UK player, and planning legislation preventing significant organic growth
- Major opportunities for Walmart elsewhere

- Could be a way of isolating Asda financial performance from Walmart global?
- Could be easier to sell Adsa as a 'stand alone' company to management + Private Equity?, Sovereign Wealth Funds, or to a major foreign player (India, China, Russia) seeking a UK presence?

Worth a 'what if' on the impact upon your trade strategies?
1 Bear in mind the radically different cultures resulting from acquisition by Private Equity (i.e. 4-year exit strategy, focus on financial ratios to optimise value via reflotation) vs Sovereign Wealth Funding (longer term, more involvement of current management, focus on longer term, steadier, but profitable development of the business.)
2 Acquisition by a major foreign player (India, China, Russia) would probably be a friendly rather than a hostile bid, working with the existing team to feel their way forward in the UK environment…but global implications for major suppliers ref prices and terms disparities…

1 comment:

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