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Last October, we posted an analysis of Wal-Mart discussions with Trustmart called Wal-Mart is Going For the Gold. At the time, it was all rumor and speculation. According to the WSJ , Marketwatch, and others though, it is no longer speculation… it is a done deal.

Wal-Mart, according to the article will be taking up a 35% stake in the Taiwanese operation, to become a minority shareholder in China’s largest hypermarket chain.

Michael Duke of Wal-Mart says the acquisition

is an important step in bringing additional scale to our China retail business and enabling us to do what we do best — serving our customers with improved service, high quality and innovative products, and lower prices,”

Of course, only time will tell if he is right, however I have a couple of questions:

1) Why only a minority stake? Wal-Mart has some of the deepest pockets around… if they believe in Trustmart to dump a billion dollars into it, why not invest another 500 million to get a majority share?

2) What are the benefits for Wal-Mart in this deal? With a minority share, they will not get signage or branding, all decisions will come down to Trustmart as majority holder, and I am not sure Wal-Mart could possibly use this to benefit their supply chain.

3) Whose next? Wal-Mart is obviously only willing to stick a big toe in the water, but Carrefour already has 100% wholly owned network of 70+ stores. How long will it take for Lianhua and/ or other regional powerhouses to become targets of Carrefour which not only has done well in china, but surely is looking to reinvest some of their China based profits.

4) At 1 billion USD for 35%, they are paying a huge amount of money. Much more than what it would cost to build their own stores (estimate 3-5 million USD per store). Even if at 5 million a store, they could still build 200 stores..

As with many deals in China, only time will tell. Retail is an industry that no longer requires partners and I find the 35% for 1 billion of 100 stores (only 30 ahead of largest competitor) to be a very interesting package.

I hope that more on this deal comes out, and I welcome any insights you may have… especially on the numbers vs. share figures.

Source: Wal-Mart Goes For the Gold In China