Wal-Mart strikes a new alliance in China with 5% stake in JD.com
June 20, 2016 01:09 PM
(Bloomberg)—Wal-Mart Stores Inc. will acquire a 5% stake in Asian e-commerce giant JD.com Inc. as part of a deal that will reshape the U.S. retail chain’s operations in China.
As part of the agreement, JD.com, No.1 in the Internet Retailer 2016 China 500, will take ownership of Wal-Mart’s Yihaodian online marketplace, the companies said in a statement Monday. The Chinese branch of Sam’s Club also will open a store on JD.com, and the two companies will link up their supply chains. Wal-Mart, No. 8 in the China 500, will receive about 145 million newly issued Class A shares of JD.com in the transaction.
The partnership gives Wal-Mart a fresh start in China after struggling to adapt to local culture and buying patterns. Wal-Mart CEO Doug McMillon has said that the company needs to succeed in China, where it estimates that 25% of global retail growth will come from in the next five years.
JD.com “has a very complementary business and is an ideal partner that will help us offer compelling new experiences that can reach significantly more customers,” McMillon said in Monday’s statement. “We also look forward to offering customers a tremendous number of quality imported products not previously widely available in China through Wal-Mart and Sam’s Club.”
A 5% stake in JD.com would be worth about $1.5 billion at its current stock price. Wal-Mart will receive about 145 million newly issued Class A shares of JD.com in the transaction. That deal will increase the retailer’s earnings per share by 16 to 19 cents in the second quarter, according to the statement.
In the U.S., where Wal-Mart generates most of its revenue, growth opportunities are more limited. With the vast majority of Americans already living within a few miles of a Wal-Mart, there is less room for expansion.
For JD.com, the agreement brings it greater scale and access to online groceries, helping the company challenge e-commerce market leader Alibaba Group Holdings Ltd. Partnering with well-known U.S. brands has been part of JD.com’s efforts to be seen as a more trusted online retailer than Alibaba.
News of the alliance sent the shares up as much as 9.4% to $22.04 on Monday in New York.
“We look forward to further developing Yihaodian, which has tremendous strength in important regions of eastern and southern China,” JD.com CEO Richard Liu said in the statement.
Wal-Mart acquired a 51% stake in Yihaodian in 2012, aiming to tap China’s e-commerce book. It then bought the remaining 49% stake last July when the business’s founders left to start a new venture.
Yihaodian, which was founded in 2008, is mostly focused on selling groceries to higher-end female shoppers in Shanghai, Beijing and Guangzhou. It hasn’t been a major competitor to JD.com, which has a broader, more national scale.
Since Wal-Mart bought Yihaodian, the company has seen growth slow. Wal-Mart has reduced the number of sellers on the marketplace and started reorganizing the business.
“We have been in a transition phase at Yihaodian since acquiring full ownership,” McMillon told investors in February. But at the time, McMillon was still touting the benefits of the deal, noting that Wal-Mart was using Yihaodian’s delivery network to increase its capacity for online orders. “Overall, we’re excited about the actions we’re taking in China that are setting us up for long-term growth,” he said.