After 20 years in the U.K. grocery business, Walmart Inc. (NYSE: WMT) has decided to pull out. The U.S. mega-retailer announced Friday that it had sold the Asda grocery chain to a consortium of the Issa brothers (Zuber and Mohsin) and U.K.-based private equity firm TDR Capital.
The transaction price of £6.8 billion ($8.78 billion) is in line with an April estimate that Walmart was seeking a price of around £7 (about $8.6 billion at the then-current exchange rate). Walmart also will retain a stake in Asda of undisclosed size. Walmart acquired Asda, the U.K.’s third-largest grocery chain, in 1999 for £6.7 billion.
In a separate announcement, Walmart said it would recognize a noncash, after-tax loss of approximately $2.5 billion in fiscal 2021 (which ends in January). The company also expects an earnings per share hit of $0.25 in the first full year after the transaction is completed, reflecting the lack of net income from Asda. Walmart noted that it would determine how to use the cash it receives from the sale, but the company expects the choice to offset at least partially the hit to earnings per share.
In a joint announcement, Walmart said the transaction would be “debt-free and cash-free.” The term has a relatively simple definition: Walmart will pay off all Asda’s debt and pocket all Asda’s excess cash before the transaction is completed. It often gets much less simple, of course.
The transaction is expected to be completed in the first half of 2021, after passing regulatory approvals.
In 2018, Walmart announced that it would sell Asda to the U.K.’s second-largest grocery chain, Sainsbury, for $3 billion in cash and a 42% stake in the combined British company. At the time, Walmart was more interested in completing a much larger deal with India’s Flipkart. U.K. regulators rejected the Asda deal in late 2019 on anti-competitive grounds.
Early Friday, Walmart stock traded down fractionally to $142.26, in a 52-week range of $102.00 to $151.33. The stock’s consensus price target is $146.09.