Wal-Mart bows out of Germany
No. 1 retailer to exit nation after struggle to succeed in local market.
July 28 2006: 5:57 AM EDT
FRANKFURT (Reuters) -- Wal-Mart, the world's biggest retailer, is selling its underperforming German stores to the country's leading retail chain Metro, marking a major retreat that will cost it about $1 billion.
Wal-Mart (Charts) has struggled to capture market share ever since entering the German market eight years ago, hurt by cut-throat competition from rivals such as Metro and discounters like Aldi and held back by the country's tepid consumer climate.
This is the second time in two months that Wal-Mart has pulled out of a country as it focuses on growth in China and South and Central America, and lobbies for permission to build stores in India.
"It has become increasingly clear that in Germany's business environment it would be difficult for us to obtain the scale and results we desire," Wal-Mart's vice chairman Michael Duke said in a statement on Friday.
Wal-Mart, which operates 85 hypermarkets across Germany, said it would incur the roughly $1 billion pretax loss on the deal in the second quarter of its fiscal 2007 year.
"Wal-Mart just couldn't make it any more," a source close to the deal told Reuters. "They had to get out."
Germany has proved difficult for Wal-Mart since day one. The retailer bought 21 Wertkauf hypermarkets in January 1998, and then acquired 74 Interspar hypermarkets a year later. Wal-Mart has acknowledged that it misunderstood German regulations, shopping habits and tastes, and the unit remained unprofitable.
Wal-Mart had already closed several of its stores in Germany, where it generated â¬2 billion ($2.55 billion) in sales last year.
Metro Chief Executive Hans-Joachim Koerber, who has been eager to find ways to boost its own underperforming Real food store chain, said Wal-Mart had sold its operations at less than asset value and had been "keen" to sell.
"With this acquisition, we complement our store network and increase our power in the German market," he said in a statement.
A real move
Metro said it would derive a one-time positive earnings effect from the deal, which the source close to the deal said would be in the hundreds of millions of euros.
However, additional restructuring costs for the acquired stores might reduce that amount somewhat, another source said.
Metro's shares rose strongly on news of the deal and were trading 4.2 percent higher at 4:35 a.m. ET, in an otherwise flat German blue-chip index.
"We believe that the acquisition could make sense from a strategic point of view," said Nils Lesser, analyst at Merck Finck, in a note. But while the move would allow Metro to remove the biggest rival to its Real chain, it would not resolve the problem of overcapacity in the German supermarket sector.
Metro's Real division operates 550 supermarkets and hypermarkets, with more than half of them in Germany.
Koerber said he expected performance at Metro's Real unit to improve following the Wal-Mart acquisition, but not until after next year. "We would not be making this acquisition if we would not believe in medium-term improvement," Koerber said.
Wal-Mart operates more than 6,600 retail outlets around the globe, with sales of $312 billion last year.
Its move to exit Germany comes about two months after it sold its stores in South Korea, where it also failed to gain traction in a notoriously tough market for foreign retailers.
Wal-Mart has invested heavily in other regions in the past year, buying a majority stake in Japan's Seiyu, completing its acquisition of Sonae in Brazil, and expanding into new markets including Costa Rica, El Salvador and Nicaragua.
The retailer has said it plans to open 220 to 230 international stores this year.
Its international operations generated $62.7 billion in sales in the fiscal year that ended in January, accounting for about 20 percent of the company's total annual sales.
The international business has become increasingly important as Wal-Mart faces slowing sales growth and mounting opposition to its expansion at home.
http://money.cnn.com/2006/07/28/news/international/bc.retail.metro.walmart.reut/index.htm
No. 1 retailer to exit nation after struggle to succeed in local market.
July 28 2006: 5:57 AM EDT
FRANKFURT (Reuters) -- Wal-Mart, the world's biggest retailer, is selling its underperforming German stores to the country's leading retail chain Metro, marking a major retreat that will cost it about $1 billion.
Wal-Mart (Charts) has struggled to capture market share ever since entering the German market eight years ago, hurt by cut-throat competition from rivals such as Metro and discounters like Aldi and held back by the country's tepid consumer climate.
This is the second time in two months that Wal-Mart has pulled out of a country as it focuses on growth in China and South and Central America, and lobbies for permission to build stores in India.
"It has become increasingly clear that in Germany's business environment it would be difficult for us to obtain the scale and results we desire," Wal-Mart's vice chairman Michael Duke said in a statement on Friday.
Wal-Mart, which operates 85 hypermarkets across Germany, said it would incur the roughly $1 billion pretax loss on the deal in the second quarter of its fiscal 2007 year.
"Wal-Mart just couldn't make it any more," a source close to the deal told Reuters. "They had to get out."
Germany has proved difficult for Wal-Mart since day one. The retailer bought 21 Wertkauf hypermarkets in January 1998, and then acquired 74 Interspar hypermarkets a year later. Wal-Mart has acknowledged that it misunderstood German regulations, shopping habits and tastes, and the unit remained unprofitable.
Wal-Mart had already closed several of its stores in Germany, where it generated â¬2 billion ($2.55 billion) in sales last year.
Metro Chief Executive Hans-Joachim Koerber, who has been eager to find ways to boost its own underperforming Real food store chain, said Wal-Mart had sold its operations at less than asset value and had been "keen" to sell.
"With this acquisition, we complement our store network and increase our power in the German market," he said in a statement.
A real move
Metro said it would derive a one-time positive earnings effect from the deal, which the source close to the deal said would be in the hundreds of millions of euros.
However, additional restructuring costs for the acquired stores might reduce that amount somewhat, another source said.
Metro's shares rose strongly on news of the deal and were trading 4.2 percent higher at 4:35 a.m. ET, in an otherwise flat German blue-chip index.
"We believe that the acquisition could make sense from a strategic point of view," said Nils Lesser, analyst at Merck Finck, in a note. But while the move would allow Metro to remove the biggest rival to its Real chain, it would not resolve the problem of overcapacity in the German supermarket sector.
Metro's Real division operates 550 supermarkets and hypermarkets, with more than half of them in Germany.
Koerber said he expected performance at Metro's Real unit to improve following the Wal-Mart acquisition, but not until after next year. "We would not be making this acquisition if we would not believe in medium-term improvement," Koerber said.
Wal-Mart operates more than 6,600 retail outlets around the globe, with sales of $312 billion last year.
Its move to exit Germany comes about two months after it sold its stores in South Korea, where it also failed to gain traction in a notoriously tough market for foreign retailers.
Wal-Mart has invested heavily in other regions in the past year, buying a majority stake in Japan's Seiyu, completing its acquisition of Sonae in Brazil, and expanding into new markets including Costa Rica, El Salvador and Nicaragua.
The retailer has said it plans to open 220 to 230 international stores this year.
Its international operations generated $62.7 billion in sales in the fiscal year that ended in January, accounting for about 20 percent of the company's total annual sales.
The international business has become increasingly important as Wal-Mart faces slowing sales growth and mounting opposition to its expansion at home.
http://money.cnn.com/2006/07/28/news/international/bc.retail.metro.walmart.reut/index.htm
