Walmart, Bharti Enterprises call off India JV

Walmart will acquire Bharti's stake in the JV; both to operate independently in the retail space

Six years after they announced their equal partnership in a wholesale business, the world’s largest retail chain Walmart Stores and Bharti Enterprises (that has the country’s largest telco under its fold Bharti Airtel) Wednesday morning called off the joint venture.

Walmart would buy out Bharti’s 50% stake in the cash and carry business, while Bharti would run the frontend retail business, EasyDay, on its own.

As of now, this development implies that the $440-billion American chain will not open retail stores in India anytime soon, a matter over which the entire political class has been divided. It is also a signal that world business leaders lack confidence in the Indian policies at a juncture when the country requires foreign investment.

Walmart’s parting of ways with Bharti may keep back other potential investors too from India in the retail sector, experts point out in early reactions to the breakup.



A senior official of the Department of Industrial Policy and Promotion (DIPP) told Business Standard that the government was not looking at reviewing the conditions linked to the multi-brand FDI policy even after Walmart’s announcement. “Minister (Anand Sharma) is on record saying that.”

Sharma had told the media earlier this week that policies cannot be made or tweaked for specific companies while reacting to Walmart Asia chief Scott Price’s statement in Bali that the country’s multi-brand policy was impossible to follow.

Yesterday, Finance minister P Chidambaram had tried to play down the anti-investment sentiment by stating that the last word had not been spoken on Walmart. Chidambaram also said that Walmart CEO (Mike Duke) was in touch with his colleague (Anand Sharma).

Obviously, the ministers have not been in the loop on the matter, or they have refused to admit the development.       

After Wednesday’s announcement, an official at DIPP, the administrative department for retail policies, said it should not be seen as a let-down for India because Walmart has said it remained committed to the country. “It was a partnership problem. What can we do about it?”

Technically, this official is right. Walmart and Bharti said in a joint statement this morning that they had “reached an agreement to independently own and operate separate business formats in India and discontinue their franchise agreement in the retail business.” The agreement is subject to finalisation of definitive agreements and receipt of the requisite regulatory approvals, the statement said.

Walmart has decided to buy out the entire wholesale or cash and carry venture. Upon receipt of required clearances, Walmart would acquire Bharti’s stake in Bharti Walmart Private Limited, the joint venture between Bharti and Walmart, giving Walmart 100% ownership of the Best Price Modern Wholesale cash and carry business, the two companies said.

As for frontend retail in the lucrative Indian market, for which Walmart has been waiting for long, the American chain said today, “it would continue to grow this business (wholesale) while working with the government and interested stakeholders to create conditions that enable foreign direct investment in multi-brand retail.”

The companies have also decided on settling the controversial issue of Walmart’s $100 million investment made in 2010 in Cedar Support Services, a company owned and controlled by Bharti. This investment has been under the investigation of the Enforcement Directorate for alleged violations of FEMA. The statement said Bharti will acquire the Compulsory Convertible Debentures (CCDs) held by Walmart in Cedar Support Services. Recently, Walmart sought a one-year extension for converting the debentures into 49% equity in Bharti Retail, beyond the deadline of September 30, 2013.



Walmart and Bharti had called each other “natural partners”, but things fell apart on the way. While stringent policy conditions such as mandatory 30% sourcing from Indian small and medium sector units has been the main hurdle, other clauses like minimum investment of $100 million in fresh or greenfield facilities, of which 50% must go into backend, too have played a spoiler. Upcoming elections and statewise nod to FDI in retail are a stumbling block as well.

Besides policy, Walmart’s internal anti-corruption drive that led to suspension of five executives in its JV with Bharti also resulted in bad blood between the partners. And, then there was Walmart’s disclosures to the Senate on its lobbying activities to gain greater access to key markets including India that made things worse politically, with Opposition MPs asking for a probe. An inquiry by one-man committee headed by former Justice Mukul Mudgal was however closed a few months ago due to inadequate information.           
Bharti Retail’s EasyDay, which has been a Walmart franchisee, will not have any linkages with the American chain.

Rajan Bharti Mittal, Vice Chairman and MD, Bharti Enterprises said: “Bharti is committed to building a world-class retail venture and will continue to invest in Bharti Retail across all formats. We believe that with our current footprint of 212 stores, we have a strong platform to significantly grow the business and delight customers.”

Both Mittal and Walmart’s Price wished each other well in business. But they surely know that they must begin from scratch to look for potential partners in Indian retail. Especially in a scenario when even a year after the Cabinet cleared up to 51% FDI in multi-brand retail, not a single application has come in. Others like UK’s Tesco and France’s Carrefour too are waiting for policy clarity and better times to make their proposal. All eyes on post-2014 elections now.