(Bloomberg)—Walmart Inc., No. 3 in the Internet Retailer 2019 Top 1000, is mulling an initial public offering for its Asda unit, a listing that that could value the U.K. grocer at as much as an estimated 8.5 billion pounds ($11 billion).
News of a possible float of Britain’s fourth-largest supermarket comes only weeks after U.K. antitrust regulators blocked a planned merger with rival J Sainsbury Plc, No. 4 in the Internet Retailer Europe 500.
“While we are not rushing into anything, I want you to know that we are seriously considering a path to an IPO,” Judith McKenna, the company’s international chief, told employees at an internal event in Leeds, England, on Tuesday, according to a summary of the event provided by Asda. Any preparations for going public would “take years,” she said.
Asda (No. 10 in the Europe 500) could be valued at six or seven times earnings before interest, tax, depreciation and amortization, according to Bruno Monteyne, an analyst at Sanford C. Bernstein, who estimates the company’s Ebitda at about 1.2 billion pounds ($1.5 billion). The company would need to wait until the grocery market is more attractive to investors, he said.
“It would be good for the market if Asda does IPO,” he said, “as it would have to disclose more information than it does now as part of Walmart.”
Regulators’ decision last month to block the 7.3 billion-pound ($9.4 billion) deal to merge Asda and Sainsbury threw a wrench in the world’s largest retailer’s plans to reshape its international operations. Bloomberg News reported at the time that Walmart was exploring options for the unit, with an IPO one of the alternatives on the table.
In addition to a potential listing of Asda, the U.S. retailer could also revisit a sale, though interest from private-equity firms has been lukewarm, people familiar with the situation said last month. Walmart plans to take its time to analyze the most feasible strategy for Asda and could opt to keep the business, one of the people said.
Walmart has revamped its international portfolio by selling a majority stake in its Brazilian business and acquiring a majority interest in Indian ecommerce leader Flipkart Group in its biggest-ever deal.
Keeping a foot in the UK
A deal with Sainsbury would have let the U.S. giant keep a foot in the U.K. through a minority holding in the combined company, without the headaches of managing day-to-day operations in one of the world’s most competitive markets. An Asda IPO could give the unit a similar structure to Walmart’s separately listed Mexico and Central America business.
“Walmart does not have a one-size-fits-all approach to operating its international markets, but a consistent focus on strong local businesses powered by Walmart,” McKenna told employees.
Roger Burnley, head of the Asda unit, also told staff on Tuesday that despite the recent merger upset, the grocer is forging ahead with its own standalone strategy. He said Asda planned to plow a further 80 million pounds in cutting prices for the rest of the year, which Monteyne called a “substantial price investment.”
Favorite