Sunil Mittal’s Bharti Enterprises and Walmart today said they are parting ways to operate retail stores independently in India,ending speculation over the future of their six-year-old partnership.
The US retail major will buy out its Indian partner in their 50:50 cash-and-carry joint venture Bharti Walmart,which runs 20 wholesale stores under the Best Price Modern Wholesale brand in India,for an undisclosed sum.
Bharti will acquire USD 100 million of Compulsory Convertible Debentures (CCDs) held by Walmart in Cedar Support Services,a company owned and controlled by the Indian firm. It will continue to run its ‘easyday’ retail stores on its own.
In a joint statement,the companies said they have reached an agreement to independently own and operate separate business formats in India and discontinue their franchise agreement in the retail business.
The agreement is subject to finalisation of definitive agreements and requisite regulatory approvals,it said.
Bharti Enterprises Vice Chairman and MD Rajan Bharti 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…”
Walmart said it plans to continue to grow its “business while working with the government and interested stakeholders to create conditions that enable foreign direct investment (FDI) in multi-brand retail.”
“Given the circumstances,our decision to operate independently will be beneficial to both parties,” Walmart Asia President and CEO Scott Price said.
The two partners joined hands in 2007 and launched their first Best Price Modern Wholesale cash-and-carry store in Amritsar in May 2009.
Asked about the financial details of the separation,a Walmart India spokesperson said: “We are currently working with Bharti to finalise the terms of the agreement and transition arrangement. If and when we reach a definitive agreement on transaction terms,we will provide further financial information as appropriate.”
In a separate development,former Walmart India head Raj Jain has been roped in as an advisor by the Bharti group.
Confirming the development,Jain said: “The appointment will be effective soon,but I cannot share the details of my role right now.”
While Bharti and Walmart did not specify the reasons for the split,sources said Bharti was getting anxious with Walmart’s approach towards its business in India,which resulted in stalling of operations of their JV with no new stores opened in the past several months.
Although the government allowed 51 per cent FDI in multi-brand retailing in September last year,Walmart had expressed its inability to meet a 30 per cent sourcing requirement from small industries,saying it could source only about 20 per cent.
The provision was then diluted to allow global retailers to source 30 per cent of their products from small and medium enterprises only at the start of the business.
Walmart has also been probing alleged corruption practices at its Indian arm,after which Jain left the firm. In 2012,Bharti Walmart had suspended five executives,including CFO Pankaj Madan,who later quit the company.
The company’s USD 100 million investment in Cedar Support Services is also being probed by the Enforcement Directorate for alleged violation of norms.
Sector observers said the development was expected,considering the recent public comments from the top leadership of the two partners.
“Also,I do not read this in the larger perspective of the FDI story,which has other aspects that need to be addressed at a different scale,” PwC India Leader (retail and consumers) Rachna Nath said.