Connect us       New User?     Subscribe Now
Confirm your Email ID for Updates
Bharti and Walmart call off their retail JV
Thu, 10 Oct 2013 00:59:00 0530
Townhall meetings are part of the Walmart culture. And, it took just another such meeting to break the news that the US retail giant was splitting with its Indian partner, Bharti. But that was not the only townhall meeting for the day — Walmart’s fourth-floor Gurgaon office hosted three on Wednesday.

The first, a joint one, confirmed something that had been playing out in the media for months and, more prominently, for the past few days, as top executives from both sides indicated the venture wasn’t going anywhere. Bharti and Walmart, after staying together for six years in cash-and-carry, have decided to independently pursue their retail businesses in India. Walmart will fully own the cash-and-carry business, buying out Bharti’s 50 per cent stake for an undisclosed amount. While Bharti, which has exited businesses earlier, too, knows quite well what failed deals are about, Walmart is known for exiting markets — Germany, South Korea and Russia are some examples.

The other two meetings, one each organised by Walmart and Bharti bosses, might have lifted the morale of the staff.

In the second, it was announced that Raj Jain, who had stepped down as Walmart India head in June, under mysterious circumstances, would return — but as part of the other camp. “Jain has been appointed advisor to the Bharti group,” a Bharti official confirmed later.

A source told Business Standard the sound of clapping cut the silence when Bharti Enterprises Vice-Chairman & MD Rajan Mittal announced Jain was going to be back, with Bharti. And, Jain is not the only Walmart person switching sides. Recently, Pankaj Madan, a top Bharti-Walmart executive who was one of the five suspended after an internal anti-corruption probe, was appointed by Bharti for its African operations.

The third townhall was addressed separately by Walmart Asia head Scott Price, back from Bali where he had hinted at a break-up. He is believed to have asked the employees, around 10,000 of them across Bharti-Walmart and Bharti Retail, to decide within three months on whether they want to stay with Walmart or Bharti.

At least for now, the assurance was that there would be no job losses.

Insiders claimed the decision to part ways might have been a fairly calculated one, and “the split may be on the paper”. There was no souring of the relationship, perhaps. “And, who knows, they might come back together on a later date,” a source said. Another argued Bharti and Walmart had been planning this for six-seven months and nothing about the announcement was a last-minute decision. The $440-billion Walmart could now return to the Indian front-end retail business with a clean slate, without the burden of any Enforcement Directorate probe or investigation under America’s Foreign Corrupt Practices Act (FCPA) that had stopped all expansion. By the time it has readies itself to come back, policy issues, too, might have been ironed out. As of now, Walmart will be among Bharti Retail’s sourcing partners.

Calling off the venture, the two companies said in a joint statement on Wednesday morning that Walmart would buy out Bharti’s 50 per cent stake in the cash-and-carry business to take over the full wholesale operation in the country.

There’s no FDI cap in cash-and-carry. Bharti would run the front-end retail business, EasyDay, on its own. This development implies that the American chain will not open retail stores in India anytime soon, a matter over which the entire political class has been divided.

It could also imply that global business leaders lack confidence in the Indian policies at present, a time the country requires foreign investment.

Shoppers Stop Managing Director Govind Shrikhande said it was a signal to the government that its multi-brand retail policy was not tenable. “Earlier, Technopak Advisors Founder & Chairman Arvind Singhal had said the “government must be more pragmatic than dogmatic” on the policy front.

A senior official of the Department of Industrial Policy and Promotion (DIPP), however, maintained the government was not looking at reviewing the conditions linked to the multi-brand FDI policy, even after Walmart’s announcement. Reacting to Scott Price’s statement from Bali that the country’s multi-brand policy was not tenable, Sharma had told the media earlier this week that policies could not be made or tweaked for specific companies. Yesterday, Finance Minister P Chidambaram had tried to play down the anti-investment sentiment by saying the last word had not been spoken on Walmart. Chidambaram also said Walmart CEO (Mike Duke) was in touch with his colleague (Sharma).

Clearly, the ministers were either not in the loop on the matter or refused to admit the development.

It should not be seen as a let-down for India because Walmart had said it remained committed to the country, a DIPP official said. “It was a partnership problem. What can we do about it?”

Technically, this official is right. Wednesday’s joint statement said Bharti and Walmart had “reached an agreement to independently own and operate separate business formats in India and discontinue their franchise agreement in the retail business.”

Walmart has decided to buy out the entire wholesale or cash and carry venture. Upon receipt of required clearances, it would acquire Bharti’s stake in Bharti-Walmart Pvt Ltd, a joint venture between the two, to get 100 per cent ownership of the Best Price Modern Wholesale cash-and-carry business, the two companies said. Neither disclosed the deal amount.

On the front-end retail in the lucrative Indian market, for which Walmart has been waiting for long, the American chain on Wednesday said: “...would continue to grow this business (wholesale) while working with the government and interested stakeholders to create conditions that enable foreign direct investment in multi-brand retail.”

On the break-up, a Walmart India spokesperson said it was a mutual decision based on external and internal factors, including the FDI policy. “Walmart could not invest in multi-brand retail through the existing Bharti Retail business.”

The companies have also decided to settle the controversial issue of Walmart’s $100-million 2010 investment made in Cedar Support Services, a company owned and controlled by Bharti. This investment is being probed by the Enforcement Directorate for alleged violations of the Foreign Exchange Management Act (Fema). The statement said Bharti would acquire the compulsorily convertible debentures (CCDs) held by Walmart in Cedar Support Services. Recently, Walmart had sought a one-year extension for converting the debentures into 49 per cent equity in Bharti Retail, beyond the deadline of September 30, 2013.

Walmart and Bharti had called each other “natural partners”, but things fell apart on the way. While stringent policy conditions, such as mandatory 30 per cent sourcing from Indian small and medium enterprises, has been the main hurdle, other clauses like a minimum investment of $100 million in new facilities (50 per cent of that in building back-end infra), too, have also played a spoiler. Upcoming elections and state-wise approval to FDI in retail are also seen as a stumbling block.

Besides policy, Walmart’s internal anti-corruption drive, which had led to suspension of five executives of the JV, also resulted in bad blood between the partners. And then there also was Walmart’s disclosure to the US Senate on its lobbying activities to gain greater access to key markets, including India. That made things worse, politically, with the Opposition asking for a probe. An inquiry by a one-man committee headed by former Justice Mukul Mudgal was, however, closed a few months ago due to inadequate information.

Bharti Retail’s EasyDay, which has been a Walmart franchise, will not have any linkage with the American chain. Rajan Mittal said: “Bharti is committed to building a world-class retail venture and will continue to invest in Bharti Retail across all formats. We believe that with our current footprint of 212 stores, we have a strong platform to significantly grow the business and delight customers.”

Both Mittal and Walmart’s Price wished each other well in business. But they surely know they must begin from the scratch to look for potential partners in Indian retail. Others, such as UK’s Tesco and France’s Carrefour, too, are waiting for policy clarity and better times to make their proposals.
Online Poll
Connect Us       New User?     Subscribe Now