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Walmart Nearly Exits Japan, Sells 85% Stake in Seiyu to KKR and Rakuten

GuruFocus.com
·3 min read

- By Mayank Marwah

Walmart Inc. (NYSE:WMT) has agreed to sell its 85% stake in Seiyu, a Japanese supermarket chain, to U.S. investment firm KKR & Co. Inc. (NYSE:KKR) and Japanese e-commerce company Rakuten (TSE:4755). The U.S. retailer would retain a 15% stake in Seiyu. The deal is valued at approximately $1.6 billion and the transaction is expected to close in the first quarter of 2021, subject to regulatory approval.


The combined retail expertise and innovation of KKR, Rakuten and Walmart will help Seiyu's digital transformation.

Looking back

Walmart has struggled to find its footing in a highly competitive Japanese retail sector. Foreign players, including British multinational groceries and general merchandise retailer Tesco and Carrefour, a French international hypermarket chain, have exited the market.

The big-box retailer entered Japan back in 2002, purchasing a 6% stake in Seiyu. Walmart happened to be the first foreign retailer to take control of a Japanese retailer. In 2008, having incurred losses for seven straight years amid stiff competition, the company fully acquired Seiyu.

In 2019, however, Seiyu recorded a net profit of 47 million yen after having reported losses in most of the previous years.

Prior to divesting of its majority stake in Seiyu, Walmart pulled out of Britain and Argentina due to fierce competition from local peers.

Details of the impending deal

Rakuten has had an online venture with Seiyu since 2018.The collaboration enabled Rakuten to deliver goods from Seiyo's stores and logistics centers to consumers' homes. Going forward, the deal will help the e-commerce company more effectively compete with Amazon (NASDAQ:AMZN), which recently collaborated with Life Corp. (TSE:8194), a general retailer of lifestyle-related goods and clothing, in view of stepping up its game in the online grocery business. Rakuten's Group Executive Vice President Kazunori Takeda commented:


"We look forward to accelerating digital transformation of Seiyu brick and mortar retail and further merging the best of offline and online retail to offer Seiyu customers the best possible OMO (online merges with offline) customer experience."



Japan is a high-priority market outside the U.S. for the private equity fund KKR, particularly because the coronavirus pandemic has triggered and accelerated the Japanese businesses' assets disposal and restructuring program. Hiro Hirano, co-jead of Asia Pacific Private Equity and the CEO of Japan at KKR, said:


"We will focus on working closely with Seiyu's management team and associates and leveraging the expertise of Rakuten and Walmart to enhance the customer experience, meet their ever-changing needs, and make shopping more accessible through digitalization."



As far as Walmart is concerned, it would keep giving Seiyu access to its best global retail practices, sourcing network and scale so as to maintain price leadership.

Summing up

Walmart's near exit from Japan reflect its intension of focusing on China and India, which are high-growth markets, and the U.S. ,most importantly, from where it derives roughly 70% of consolidated revenue.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.