By Nandita Bose and Gram Slattery
NEW YORK/SAO PAULO, June 4 (Reuters) – Walmart Inc said on Monday that private equity firm Advent International will buy a majority stake in its Brazilian operations, the retailer’s third major deal to reshape its international business since April.
Advent will own an 80 percent stake in Walmart Brazil and the retailer will retain the remaining 20 percent, Walmart said without disclosing the value of the transaction.
As a result of the deal, Walmart expects to record a noncash net loss of approximately $4.5 billion as a special item in the second quarter.
The retailer has been rejigging its international business with a focus on investing in growth markets like China and India. It recently sold a majority stake in its UK arm ASDA to J Sainsbury Plc and paid $16 billion to pick up a majority stake in Indian e-commerce firm Flipkart.
Walmart is trying to catch up with competitors ranging from grocer Aldi Inc to Amazon.com Inc in key international markets. The retailer’s underperforming international business made up less than one-quarter of total revenue of $500.3 billion in fiscal 2018.
In an effort to fix its international performance, Walmart in January appointed Chief Operating Officer Judith McKenna to run the international unit and the slew of changes have been made under her leadership.
Walmart had been looking for buyers for its Brazilian business and sounded out possible investors last year but received no interest from rival retailers, which led the company to seek out buyout firms, according to a source.
Reuters reported in January that Walmart was shopping its Brazilian unit to private equity firm Advent and others.
In March, Reuters reported that in the due diligence process potential buyers had estimated that Walmart owes up to $3 billion in back taxes to state governments in Brazil, potentially adding to pressure for a discount sale.
The biggest tax liabilities stem from local retail tariffs in different states, with the highest numbers in the states of Santa Catarina and Pernambuco, where Walmart acquired regional supermarket chains during an ill-fated expansion more than a decade ago, the sources said.
Walmart entered Brazil in 1995 and had grown into the country’s third largest retailer following two major acquisitions in 2004 and 2005 and a period of rapid store expansion that came to a halt in 2013.
It currently operates 471 stores in Brazil, according to the company’s local website. The Brazilian unit reported revenues of almost 30 billion reais ($9.4 billion) in 2016.
Walmart has posted operating losses in Brazil for seven years in a row after an aggressive, decade-long expansion left it with poor locations, inefficient operations, labor troubles and uncompetitive prices. (http://reut.rs/2DWNOtp)
A source with knowledge of the deal said Walmart’s operations in Brazil had not improved over the last two years, which coincided with the country’s harshest recession in decades. The transaction is subject to regulatory approval, and the retailer expects it to close later this year.
A significant portion of the expected net loss will be due to foreign currency translation losses, and the final loss could fluctuate significantly due to changes in forex rates up to the closing date, the retailer said.
The company’s shares rose 1.3 percent at $84.08 in early trade on Monday. (Reporting by Nandita Bose in New York and Gram Slattery in Brazil; Editing by Jonathan Oatis and Jeffrey Benkoe)
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