Wal-Mart in China deal -- Russia next? http://www.reuters.com/article/ousiv/idUSN2740071120070227
Tue Feb 27, 2007
By Brad Dorfman
CHICAGO (Reuters) - Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research) on Tuesday announced a deal to take over a big retailer operating in China by 2010, and a report out of Russia said the world's biggest retailer might also be looking at an acquisition there.
Wal-Mart has struggled recently to increase sales in its home U.S. market, and emerging markets, like China, are seen as fertile areas for Western retailers to grow.
"They think they can do in those countries what they did here and capture the market before anyone else does," said Don Hodges, co-manager of the Hodges Mutual Funds, which holds about 210,000 Wal-Mart shares and also manages individual portfolios with Wal-Mart shares.
Wal-Mart said on Tuesday that it purchased a 35 percent stake in Bounteous Co. Ltd., which operates hypermarkets under the Trust-Mart banner. Under terms of the deal, Wal-Mart said it would buy control of the Taiwan-based company by 2010 if conditions were met.
Financial terms were not disclosed, but a source familiar with the deal said Wal-Mart would eventually pay $1 billion for all of Bounteous, which operates 101 hypermarkets in 34 Chinese cities.
"This is an important step in bringing additional scale to our China retail business and enabling us to do what we do best -- serving our customers with improved service, high quality and innovative products, and lower prices," Wal-Mart Vice Chairman Michael Duke said in a statement.
The deal would allow Wal-Mart to challenge French rival Carrefour (CARR.PA: Quote, Profile, Research) as the largest operator of super-centers in China.
The deal is a long-term move for Wal-Mart, but the timing of the announcement came during a bad day for investors in China. China's main equity index, the Shanghai Composite Index (.SSEC: Quote, Profile, Research), fell almost 9 percent on fears that the government would crack down on speculation that had driven shares to record highs.
"I'm sure they don't feel too good about the market tumbling on them," Hodges said. "The market has been so good. It's probably going to be a little volatile for them, but I don't think it reduces the long-term attractiveness for them."
Meanwhile, a co-owner of Russian hypermarket operator Karusel said on Tuesday that that chain is in sale talks and that Wal-Mart was among the possible buyers. A Wal-Mart spokesperson declined comment, citing company policy.
Retail sales in Russia reached $185.16 billion in 2006, according to market research firm Euromonitor International, which also said the Russian retail market is expected to grow at a compound annual rate of 6.3 percent from 2006 to 2011.
In contrast, the market in China is forecast to grow at a 5.5 percent compound annual rate over the same period, Euromonitor said. Wal-Mart's international sales rose 30.2 percent to $77.12 billion in the fiscal year ended January 31, while sales at Wal-Mart brand stores in the United States rose only 7.8 percent, to $226.29 billion. Wal-Mart shares were down $1.21, or 2.4 percent, at $48.77 on Tuesday on the New York Stock Exchange.
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