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Walmart sells 80% of its Brazilian operation to Advent Intl, will record $4.5B loss as a result

Ingrid Lunden
MIAMI, FL - FEBRUARY 19: Walmart employee Yurdin Velazquez pushes grocery carts at a Walmart store on February 19, 2015 in Miami, Florida. The Walmart company announced Thursday that it will raise the wages of its store employees to $10 per hour by next February, bringing pay hikes to an estimated 500,000 workers. (Photo by Joe Raedle/Getty Images)

Walmart's ongoing push to cut away unprofitable or slow-growing international operations, to shore up its resources to compete against Amazon at home and in Asia on digital fronts, had another development today. The world's largest retailer today announced that it has finalised a deal to sell 80 percent of its business in Brazil to private equity firm Advent International, with Walmart keeping the remaining 20 percent.

The deal has been in the works for months and is expected to close in the second half of FY 2019.

Walmart and Advent are not disclosing the terms of the deal but Walmart did note in a statement that it would record a non-cash net loss of $4.5 billion in Q2 as a result.

"A significant portion of the net loss is due to the recognition of cumulative foreign currency translation losses and the final loss could fluctuate significantly due to changes in currency exchange rates up to the date of close," noted Walmart. In a 10-Q filing later in the day, Walmart also disclosed that it would receive up to $250 million in contingent consideration (although it did not specify what the contingencies might be). "Advent would contribute additional capital to the business over a three-year period, and Walmart would provide an indemnification for pre-closing tax and legal contingencies, as well as certain other matters," Walmart added.

Although Brazil represents the biggest single market in Latin America, the company has found it a struggle to grow that business substantially and last quarter said that it would wind down its first-party e-commerce business in Brazil, too. “Walmart is committed to building strong, resilient businesses that continuously adapt to local customers’ needs in a rapidly changing world,” said Enrique Ostale, EVP and CEO of Walmart UK, Latin America and Africa, in a statement. “We will retain a stake in Walmart Brazil and continue to share our global retail expertise, giving our Brazil business the best opportunity for long-term growth, providing opportunities for associates and low prices for customers.”

Advent is a prolific investor and controls a number of businesses in Brazil, including many retail companies, and the idea appears to be to use some of that to expand the operation in ways that Walmart hadn't managed to do on its own.

"We have been in Brazil for over 20 years and are excited about this partnership with one of the country's leading retailers," said Patrice Etlin, a Managing Partner at Advent International in Brazil, in a statement. "We believe that with our local market knowledge and retail expertise we can position the company to generate significant results and reach new levels of success in Brazil. We plan to invest in the business, work with the Walmart Brazil management team, associates, Walmart and our industry advisors to create a more agile and modern company to accelerate its development and improve the customer experience."

Walmart stepping back from its Brazil efforts comes at the same time as it is stepping up in another so-called BRIC economy.

The divestment comes just weeks after Walmart announced that it would be taking a majority stake in Flipkart, the largest online retailer in India, its largest deal to date. To double down on growth in Asia and also to compete better against Amazon in online retail globally, Walmart is taking a 77 percent stake in the Indian startup for $16 billion. Just before that, Walmart had announced that it would be selling a majority of its holdings in Asda, its UK business, to local rival Sainsbury's. Unlike the Brazil deal, that Asda divestiture will net Walmart about $4 billion.

Updated with more detail about the financial terms.