Through this deal Wal-Mart aims to expand its footprint in the burgeoning Chinese e-commerce market.
Wal-Mart Stores Inc has reported that it wants to sell its 5% stake in Chinese e-commerce Yihaodian to JD.com so as to buy a 5% stake in JD.com. Through this strategic move, Wal-Mart Stores aims to expand its foothold in China.
Under the terms of the deal, JD.com will issue 145 million new class A shares to Wal-Mart, worth nearly $1.5 billion at JD.com’s current valuation.
With this news hitting the market, Wal-Mart’s shares rose by 0.4% to $71.21 in late afternoon trading at the New York Stock Exchange. JD.com’s ADRs were up almost by 8% to $21.58.
In 2011, Wal-Mart had bought a stake in Yihaodian before buying it completely in last July. Yihaodian caters to online grocery sales and caters mostly to affluent female customers.
According to a note issued by Barclays, Wal-Mart’s 2011 deal although capitalised on Yihaodian’s local expertise and Wal-Mart’s supply chain management capabilities, but because Wal-Mart narrowed down the number of sellers on the site, the growth was limited.
According to the latest agreement, JD.com will not only control Yihaodian’s website but also the brand. Incidentally, JD.com is China’s second largest online retailer. Wal-Mart will continue operate Yihaodian’s direct sales business and will continue to sell on its marketplace.
Thanks to the deal, Wal-Mart will get access to JD.com’s online traffic and will be in a position to expand its reach in the Chinese market. Its stores in China will also be listed as a preferred retailer on JD.com’s O2O JV Dada, a crowd-sourced platform.
According to Brian Yarbrough, an analyst with Edward Jones, Wal-Mart’s deal with JD.com was a cost-effective way for it to get its brand and product displayed in the burgeoning Chinese market.
“It doesn’t mean that they’ve pulled away, but to me it tells me they are trying to make smarter investments,” said Yarbrough.
Morgan Stanley & Co. LLC was Wal-Mart’s financial advisors while Morrison & Foerster LLP was its legal advisor. As for JD.com, Han Kun Law Offices and Orrick Herrington Sutcliffe LLP was its legal advisors.
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