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Walmart Will Take $2.2 Billion Charge for Asda Pension Shift

Matthew Boyle and Anne Riley Moffat

(Bloomberg) -- Walmart Inc. plans to offload the cost of a retirement plan for employees of its British subsidiary Asda, incurring a pretax charge to earnings of about $2.2 billion.

Under terms of the deal, Rothesay Life Plc will take over managing pension liabilities for about 12,000 members going forward. The transaction will simplify “the business at a cost which is significantly below the expected future cost of funding internally,” the companies said in a statement.

Offloading the pension costs at Asda could be a step in preparation for a sale or an initial public offering. The charge will be incurred at the completion of the buyout in late 2020 or early 2021.

For Walmart, having a large employee retirement plan sitting on its balance sheet is a problem if it plans to divest the unit, according to James Biggs, a partner at Employee Benefits Collective LLP, a U.K. pension consulting firm.

“Rothesay takes responsibility for paying benefits to employees. In essence, it shifts the liability,” Biggs said. “Letting these liabilities rumble on into the future brings risk and potential cost creep, and can be a millstone around the neck of an employer.”

Buyer Certainty

Antony Barker, a managing director at the Pension Superfund, a consolidator of British pension plans, said that transferring the pensions will tidy up the company’s balance sheet and give any buyer certainty.

“Anyone looking to acquire them knows they are not buying a black hole,” Barker said.

Large pension liabilities have weighed on other British retailers, most notably department-store chain BHS. In 2017, retail magnate Philip Green agreed to pay as much as $450 million to compensate 19,000 former BHS workers after months of haggling with the country’s Pensions Regulator. BHS had a massive pension deficit when it failed in 2016, a year after Green sold the chain for a pound to a former race-car driver with no retail experience.

Judith McKenna, Walmart’s international CEO and a former Asda executive, said in May that Walmart is “seriously considering” an eventual IPO for Asda. A month earlier, U.K. antitrust regulators blocked J Sainsbury Plc’s bid to buy Asda, saying it would bring higher prices and less choice to shoppers. British supermarket chains have been whipsawed by economic concerns related to Brexit and pressure from German discounters Aldi and Lidl, which continue to grab market share.

Walmart shares were little changed, up 0.3% to $120.17 at 10:14 a.m. in New York on Friday. The stock had gained 29% this year through Thursday’s close, outpacing the S&P 500 Index.

(Adds context and comment from pension consultants beginning in fourth paragraph)

--With assistance from Benjamin Robertson.

To contact the reporters on this story: Matthew Boyle in New York at mboyle20@bloomberg.net;Anne Riley Moffat in New York at ariley17@bloomberg.net

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Jonathan Roeder, Lisa Wolfson

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