Walmart Inc (NYSE: WMT), the largest U.S. retailer, is looking to raise $3.74 billion by selling its stake in Chinese company JD.com (NASDAQ: JD). According to a term sheet obtained by Reuters, Walmart is offering 144.5 million American Depositary Shares (ADSs) at a price range of $24.85 to $25.85, with Morgan Stanley acting as the lead broker on the deal.
Focus on core operations in China
Walmart's decision to divest its 5.19% stake in JD.com represents a strategic shift as the retail giant looks to focus more on its operations in China, particularly its Walmart China stores and fast-growing Sam's Club chain. Despite the sale of its stake, Walmart emphasised its ongoing commitment to maintaining its business relationship with JD.com, which has been a key partner since 2016, when Walmart acquired the stake in exchange for the sale of its Chinese online grocery business Yihaodian.
Walmart further said in a statement, "This decision allows us to focus on our strong China operations for Walmart China and Sam's Club, and also deploy capital to other priorities." This suggests that the move is part of a broader strategy to optimize the global alignment of the business, rather than a reflection of concerns about prospects for JD.com.
Reactions and implications for the market
The announcement also had an immediate impact on JD.com's share price, with its Hong Kong-listed shares falling by more than 10% in early trading on Wednesday and its US-listed shares falling by 10% in after-hours trading on Tuesday following Bloomberg's first report of the deal. JD.com has faced significant challenges in recent years, as reflected in its share price, which has fallen around 70% from its peak in early 2021, despite reporting better-than-expected second-quarter earnings as recently as last week. *
The broader context for this decline includes a prolonged slump in China's retail market, driven by weakening consumer confidence amid a slowing property market and rising concerns about employment and income levels. In addition, JD.com and its competitors, including Alibaba (NYSE: BABA) and Pinduoduo (NASDAQ: PDD), are waging a fierce price war to attract consumers, putting pressure on revenue growth and profit margins across the sector.
Walmart's results in China
Despite the challenging e-commerce environment in China, Walmart has posted solid results on the continent. In the second quarter, the company's China sales grew 17.7% year-over-year to $4.6 billion, driven by strong growth in its Sam's Club store chain and digital offerings. This demonstrates the retailer's confidence in its ability to succeed in the Chinese market regardless of its stake in JD.com.
Conclusion
Walmart's move to sell its stake in JD.com is in line with its broader goal to reallocate resources to strengthen its direct operations in China, particularly focusing on high-growth areas such as Sam's Club and digital commerce. For investors, it signals the firm's strategic intent to optimise its global business portfolio and focus on markets and operations where it sees the greatest potential for sustainable growth. The divestment also highlights maintaining flexibility in capital allocation, ensuring it can continue to invest in key areas that deliver long-term value to shareholders.
* Past performance is no guarantee of future results.
JD.com's share price performance over the past five years: https://tradingeconomics.com/jd:us
