Walmart, the biggest shareholder of Chinese e-commerce firm JD.com, has sold its entire stake, according to a person familiar with the matter, exiting an eight-year investment to focus on its own operations in China.
A placement of the Walmart shares was fully subscribed, the person said, and at the top end of the offered range would be worth $3.74 billion.
The U.S. retail giant plans to double down on its warehouse business, Sam’s Club, in China after the stake sale.
The sale underscores the country’s e-commerce sector, once an investor darling, is losing its appeal as it grapples with poor margins due to brutal price competition and weak consumer demand.
Shares of JD.com have fallen around 70% from their peak in early 2021 and prices are little changed from the levels in 2016 when Walmart became its major shareholder.
“This decision allows us to focus on our strong China operations for Walmart China and Sam’s Club, and deploy capital towards other priorities,” Walmart said in a statement, adding it was committed to a continued commercial relationship with the Chinese company.
JD.com said in a statement that it was “full of confidence in the future cooperation between the two sides.”
Walmart offered 144.5 million American depositary shares of JD.com in the price range of $24.85 to $25.85, according to a term sheet seen by Reuters. Morgan Stanley was the broker-dealer of the offering.
The shares were offered at a discount of up to 11.8% to Tuesday’s closing price of $28.19. Morgan Stanley did not respond to a request for comment.
JD.com‘s Hong Kong-listed shares fell nearly 9% on Wednesday. Its U.S.-listed shares dropped more than 7% in Wednesday’s premarket trading to $26.09. Bloomberg first reported the share sale plan.
JD.com said in a stock exchange filing that it repurchased shares worth $390 million on Wednesday, part of a $3 billion buyback plan approved in March.
The company reported a better-than-expected second-quarter profit last week on its low-price policy, but China‘s retail market has been hit by a persistent downturn in consumer confidence, sparked by a property market slowdown and concerns about employment and incomes.
Major e-commerce firms, including JD.com and rivals Alibaba and PDD Holdings’ Pinduoduo have engaged in a brutal price war in order to entice consumers to buy, pressuring revenue growth and margins.
The stake sale allows Walmart to raise capital and refocuses JD.com on its core online business, but a strategic partnership between the pair can continue, especially in data sharing, said Jeffrey Towson, a Beijing-based partner at TechMoat Consulting.
In the latest quarter, Walmart reported a 17.7% year-on-year rise in revenue from its China business to $4.6 billion on the back of strong growth in its Sam’s Club warehouse chain and its digital offering.
Walmart added that membership income in China from its Sam’s Club business grew 26% as member count continues to increase. The company has about 48 clubs in China.
The U.S. retailer owned a 5.19% stake in JD.com worth about $2 billion as of March 31, per LSEG data.
The partnership between the companies began in 2016 when Walmart sold its Chinese online grocery store, Yihaodian, in return for a 5% stake in JD.com worth about $1.5 billion based of the firm’s market value at the time.
Reuters
