JD Shares Dive Nearly 9% as Walmart Offloads its Entire Stake for $3.6 Billion

TMTPost -- Hong Kong-traded shares of JD.com dived more than 8.7% and the American depositary receipts (ADRs) settled about 4.2% lower Wednesday. Shares of China’s No. 2 e-commerce company severely sold off as one of its largest shareholders dumped all of its stake.

Credit：Xinhua News Agency

Walmart Inc. has sold 144.5 million shares of JD.com for $24.95 apiece, representing its entire stake in JD for about $3.6 billion, according to a filling with the U.S. Securities and Exchange Commission (SEC) and multiple relevant reports. The sales price suggested an 11. 5% discount from JD ADRs’closing price Tuesday. Shares of JD closed at $27.02 Wednesday following selloff, still around 7.7% above the price at which Walmart offloaded its stake.

The sale marked an exit of Walmart’s equity investment in JD for eight years and the partnership between two companies entered a new terrain. Walmart first bought a stake in JD in 2016. The leading U.S. retailer stoke a deal in June 2016 to forge a partnership with JD. Under the deal, Walmart sold its Yihaodian online marketplace to JD, and received a 5% stake in JD in return, valued at roughly $1.5 billion at then prices. The company also gained access to JD’s delivery network and shoppers through the deal. The deal indicated that Wal-Mart is seeking to navigate China’s competitive e-commerce market as an investor in a major local player, rather than trying to expand its own online shopping platform.

Months after the announcement of the deal, Walmart said in October 2016 it nearly doubled its stake and held 10.8% of shares. “The stepped-up investment in JD has been part of our plan, as we continue to be a passive investor. We believe this strategic alliance will help us grow e-commerce even faster in China,” a Walmart spokeswoman said that month.

In a statement Wednesday, Walmart said its offloading will enable it to better focus on its own businesses in China. "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 the statement. It vowed to stay committed to commercial relationship with JD, which carries Walmart goods on its website, and labeled the Chinese company as a “precious partner”.

JD was confident about the future cooperation between the two companies, it said in its statement Wednesday. It was said that Walmart’s sale was due to the need for easing its own financial stress. The retailer recorded slowdown of revenue and reduced cash flow in the second quarter of the year, which requires the retailer make a diversified strategy in face of development of the market conditions to unlock resources and optimize capital allocation. The exit therefore can be deemed as an absolutely normal capital operation, which doesn’t have any impact on its strategic partnership with JD.

Walmart Sam’s Clubfranchise has been emerging as a winner in China’s new retail war. The business is the only hypermarket chain to post sales growth last year among the top 5 players, according to China Chain Store & Franchise Association. Walmart posted last week a 4.2% year-over-year (YoY) increase in revenue for the second quarter, and revenue from its China business jumped 17.7% YoY to $4.6 billion. Walmart is likely to redeploy the capital from the sale to expand its own stores, according to a report from Citigroup Inc.

"Walmart wanted to get exposure in China in 2016 and kind of learned the retail business there," said Thomas Hayes, chairman at investment firm Great Hill Capital. "They did it and they expressed that interest through JD and now they have their own exposure and their own interests in China, and they no longer need a minority position in JD when they have a great business themselves."