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HindustanTimes Sat,20 Dec 2014

Bharti, Wal-mart talk alimony terms after messy separation

Gaurav Choudhury, Hindustan Times  New Delhi, October 11, 2013
First Published: 01:09 IST(11/10/2013) | Last Updated: 01:46 IST(11/10/2013)

Wal-mart Stores Inc and Bharti Group are locked in hectic negotiations to hammer out a deal, with each partner insisting on its pound of flesh in the breaking of an alliance marred by a failed unification attempt without legally merging of their two firms.

The two companies had called off their six-year-old alliance in India on Wednesday.

Wal-mart, sources said, is in no hurry to partner another local company for its India retail foray till investigations on alleged violation of Foreign Corrupt Practices Act (FCPA) get over. It is facing allegations of violating FCPA in the US, which bars bribing officials of foreign governments including India, China, Brazil and Mexico.

Bharti, on the other hand, will expand, to reach a scale of 1,000 stores in the next two years.

“It can now expand faster as it will not be constricted by Walmart’s conditions such as the stores should be designed in a “BOX” format and not in a “rectangle”, “triangle” or floors that have pillars,” a source said on the condition of anonymity, adding, a new partner is unlikely before it reaches the targetted scale.

Two transition management teams have been set up from both sides — Bharti and Walmart — to aid the so called “de-merger”.  The companies — Bharti Retail and Bharti Walmart — were functionally integrated between 2007 and 2010, although legally they remained separate firms. 

Within 90-days, employees will be given a choice to move to either Bharti Retail or Walmart. Bharti Retail employs about 10,000 employees while Bharti Walmart has 8,000 staff on its rolls.

Bharti is demanding a significant premium over the current gross profits to let go of its 50% stake in the cash-and-carry business that runs 20 wholesale stores under the Best Price brand, sources said. Besides, it is also insisting on a premium for ‘reputation’ loss.

The Bharti-Walmart 50:50 wholesale JV, set up in 2007, earned more than `4,000 crore in revenues in 2012, sources said. Under the deal, Walmart will buy out Bharti’s stake in the venture.

As part of the proposed transactions, Bharti will also need to acquire compulsory convertible debentures worth $100 million held by Walmart in Cedar Support Services, a company owned and controlled by Bharti that operates Easy Day retail stores.

Bharti is insisting on getting this waived off, sources said.

“We cannot comment on speculation regarding our future plans,” a Bharti spokesperson said.

“We are working with Bharti to finalise the terms of the agreement and transition arrangement,”  a Walmart India spokesperson told HT in an emailed response.

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