In August of 2012, Wal-Mart Stores Inc. (NYSE: WMT) acquired a controlling stake in China-based e-commerce company Yihaodian, and a year ago the retailing giant acquired the remaining 49%. On Monday The Wall Street Journal reported that the company is now looking to sell Yihaodian to the second-largest e-commerce company in China, JD.com Inc. (NASDAQ: JD).
According to a report at Sina.com, the transaction “will be more than 40 billion yuan” (about $6 billion).
Yihaodian has carved out a grocery-sales niche in China’s vast e-commerce market. As of last year, Chinese consumers used grocery delivery services at about double the international rate.
JD.com is China’s second-largest online retailer behind Alibaba Group Holding Ltd. (NYSE: BABA), and the two firms have a history of bad blood that belies the fact that Alibaba is about six times bigger than JD.com based on market cap.
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Wal-Mart operated 432 brick-and-mortar stores in China at the end of its last fiscal year in January 2016. But store traffic has declined and Wal-Mart needs to expand its online business to keep up.
Wal-Mart ranks third in Chinese market share behind Suning Commerce Group and RT-Mart Shanghai, a subsidiary of Sun Art Retail Group, a French-Taiwanese joint venture. RT-Mart has essentially copied Wal-Mart’s “everyday low price” model and also has boosted its grocery sales.
As recently as last week, Wa-mart CEO Doug McMillon had this to say about China:
China is a tremendous opportunity and I am very excited about China, bullish on China, but it’s extraordinarily competitive, very creative competitors involved, so it’s going to be tough.
Shedding Yihaodian and partnering with JD.com would effectively reduce Wal-Mart’s exposure in China where it continues to plan to build more stores and distribution centers. Why fight city hall (Alibaba) when you can cut your losses and have a proxy that apparently relishes the battle do the fighting for you?
Wal-Mart shares traded up about 1.1% shortly after Monday’s opening bell to $71.77, in a 52-week range of $56.30 to $74.14.
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