Walmart sells $3.74b JD.com stake to focus on its China operations

Chinese e-commerce firm JD.com said on Wednesday top shareholder Walmart had sold its entire stake after an eight-year investment, as the US retail giant focuses on its own operations in China.

A placement of the shares was fully subscribed, a person familiar with the matter told Reuters, and would be worth $3.74 billion at the top end of the offered range.

The US company entered the partnership in 2016, after selling its Chinese online grocery store Yihaodian in return for a 5% stake in JD.com worth about $1.5 billion based on the firm’s market value at the time.

Walmart owned a 5.19% stake in JD.com worth about $2 billion as of March 31, according to LSEG data.

The company plans to double down on its Sam’s Club warehouse business in China after the stake sale.

The sale underscores China’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 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.

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.

“Walmart has really tried to refocus its attention on areas of strength and growth where they think that they can make a difference... Their decision to sell relates to that and that it (JD.com) was a non-core asset,” Telsey Advisory analyst Joseph Feldman said.

JD.com 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.

JD.com’s Hong Kong-listed shares closed nearly 9% lower on Wednesday. Its US-listed shares dropped more than 7% in early trading to $26.18.

Shares of Walmart rose about 1% to a record high of $75.58. JD.com also 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.

Meanwhile, Hong Kong stocks ended lower on Wednesday, weighed down by JD.com following a stake sale by top shareholder Walmart, while China shares also fell.

JD.com tumbled 8.7% and dragged tech shares down 1.9% in Hong Kong.

Electric vehicle maker Xpeng fell 2.2% after it forecast third-quarter revenue below analysts’ expectations and missed June-quarter sales estimates.

Some video game and related concept stocks jumped, with Zhejiang Publishing & Media up 10%, after a new video game title was launched on Tuesday by a Tencent-backed startup and became the most-played game on a major online platform.

At the close, the Shanghai Composite index was down 0.35% at 2,856.58.

The blue-chip CSI300 index was down 0.33%, with its financial sector sub-index lower by 0.55%, the consumer staples sector down 0.81%, the real estate index down 1.03% and the healthcare sub-index down 0.72%.

Reuters