Wal-Mart in talks to sell major stake in Brazil operations

Above, a man talks on his mobile phone in front of a Wal-Mart store in Sao Paulo, Brazil. Wal-Mart’s operations in Brazil had not improved over the last two years, which coincided with the country’s harshest recession in decades. (Reuters)
Updated 22 January 2018
0

Wal-Mart in talks to sell major stake in Brazil operations

SAO PAULO: Wal-Mart Stores is in talks with buyout firm Advent International Corp. and other funds to sell a major stake in its Brazilian operations, two people with direct knowledge of the matter said on Sunday.
Wal-Mart is being advised by Goldman Sachs & Co, according to one of the sources who spoke on condition of anonymity. Other private equity firms that are looking into the investment in the Brazilian unit are GP Investments and Acon Investments, the source added.
Wal-Mart officials in Brazil declined to comment. Advent and GP declined to comment. Goldman and Acon did not immediately reply to requests for comment.
Wal-Mart’s overseas business is not the growth driver it once was as it has continued to grapple with an economic slowdown in Brazil and competition from discount retailers in the UK.
In 2016, Wal-Mart Chief Executive Officer Doug McMillon flagged to investors that he was planning to review its global operations. His comments had sparked speculation that Wal-Mart would look to restructure or even pull out of markets where it has struggled. Brazil was among the countries most often cited by analysts as a potential target.
During the same year, Wal-Mart shuttered at least 10 percent of its stores in Brazil and shed non-core businesses across Latin America. It also sold its e-commerce business in China to Chinese e-commerce company JD.com and picked up a stake in JD.com instead of trying to crack the market on its own.
A partial exit by Wal-Mart from Brazil comes as Chief Operating Officer Judith McKenna takes over the international unit of the world’s biggest retailer. The move would give a new partner the chance to turn around a sprawling operation that has struggled to turn a profit.
Wal-Mart entered Brazil in 1995 and had grown into the country’s third-largest retailer following two major acquisitions in 2004 and 2005 and a period of rapid store expansion that came to a halt in 2013.
It currently operates 471 stores in Brazil, according to the company’s local website. The retailer’s Brazilian unit reported revenues of almost 30 billion reais (SR35 billion) in 2016.
Wal-Mart has posted operating losses in Brazil for seven years in a row after an aggressive, decade-long expansion left it with poor locations, inefficient operations, labor troubles and uncompetitive prices, Reuters reported early in 2016.
One of the people with knowledge of the deal said Wal-Mart’s operations in Brazil had not improved over the last two years, which coincided with the country’s harshest recession in decades.
Wal-Mart began sounding out possible investors in the unit several months ago but got no interest from rival retailers, which led the company to seek out buyout firms, the source said.
The retailer intends to keep a stake in the Brazilian unit to be able to recoup part of its losses in the country later if an economic recovery and restructured operations boost results, according to the source.
Retail sales in Brazil are starting to recover from the recession. Christmas sales were 5.6 percent higher than a year ago, according to credit data supplier Serasa Experian.
Earlier on Sunday, newspaper O Globo said private equity Advent was in talks to acquire 50 percent of the Wal-Mart unit. The paper did not say how it got the information or any details on the state of the talks.


Strike-hit Ryanair warns fares to remain soft as summer profit falls

Updated 6 min 28 sec ago
0

Strike-hit Ryanair warns fares to remain soft as summer profit falls

  • Ryanair three weeks ago cut its forecast for full-year profit by 12 percent
  • Europe’s largest low-cost carrier has struggled with labor relations since it bowed to pressure to recognize trade unions for the first time last December
DUBLIN: Ryanair reported a 7 percent fall in profit during its key April-September season on Monday, citing higher fuel costs and damage to bookings caused by strikes, and said European short-haul airfares would remain soft this winter.
Ryanair three weeks ago cut its forecast for full-year profit by 12 percent and warned that worse may follow if a recent wave of pilot and cabin crew strikes across Europe continue to hit traffic and bookings.
Europe’s largest low-cost carrier has struggled with labor relations since it bowed to pressure to recognize trade unions for the first time last December. It said it hoped to finalize more union agreements in the coming months but could not rule out further industrial action.
Shares of Ryanair, which is also counting the cost of stubbornly high fuel prices, closed on Friday at €11.51, down 20 percent compared to three months ago and down 40 percent from a peak of €19.39 in August last year before its staff problems emerged.
Ryanair, which traditionally makes most of its profit in the summer, reported a profit of €1.2 billion ($1.38 billion) in the six months to September 30. It reiterated its full-year profit forecast of between €1.1 billion and €1.2 billion.
That would represent a 17-24 percent fall from the record €1.45 billion post-tax profit booked in its most recent financial year to March 31.
A poll of over 10 analysts by Ryanair ahead of the results found an average forecast of €1.127 billion for the full year and €1.175 billion for the six months to September 30.
“This full year guidance remains heavily dependent on air fares not declining further — they remain soft this winter due to excess capacity in Europe — (and) the impact of significantly higher oil prices on our unhedged exposures,” Ryanair CEO Michael O’Leary said in a statement.
But he said Ryanair’s cost advantage over rivals is widening and “over the medium term, consolidation will create growth opportunities for Ryanair’s lowest fare/lowest cost model.”