World’s largest retail chain Wal-Mart Stores Inc and Sunil Mittal-led Bharti Group has called off their six-year old alliance in India, both the companies said in a joint statement on Wednesday, bringing the curtains down on a troubled deal marred by government-probes and allegations of corrupt practices.
Wal-Mart will acquire the Indian partner’s stake in the 50:50 wholesale venture Bharti group which runs cash-and-carry stores under the `Best Price Modern Wholesale’ brand making it a 100% subsidiary of the US giant.
HT had reported on September 9, 2013 about the discussions between both the companies to part ways.
“They (both the companies) have 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 joint statement said, ending weeks of speculation about the likely falling out of the two partners.
“Bharti is committed to building a world-class retail venture and will continue to invest in Bharti Retail across all formats. We wish Wal-Mart the very best for the future,” Rajan Bharti Mittal, vice chairman and MD, Bharti Enterprises, said.
“Given the circumstances, our decision to operate independently will be beneficial to both parties. We wish Bharti well as they grow their retail business,” Scott Price, president and CEO Wal-Mart Asia, said
As part of the proposed transactions, Bharti will also acquire the Compulsory Convertible Debentures (CCDs) held by Wal-Mart in Cedar Support Services, a company owned and controlled by Bharti that operates front-end retail stores under the brand name `Easy Day.’
The US-based retail giant had the option of converting into equities $100 million (Rs 455.80 crore then) dollars it had lent to the Bharti Group in 2010 in a deal which Indian authorities are probing for flouting rules.
The deadline for converting these funds into equities lent through CCDs ended on September 30.
On Wednesday, both companies said Wal-Mart will not convert these funds into equities that would have given the Bentonville-based company a 49% share in Bharti’s 'Easy Day' retail venture.
Wal-Mart’s investment in Bharti had come under a scanner amid allegations that the global retail chain may have entered India’s front-end multi-brand retail business two-and-a-half years before the government actually lifted the ban on foreign investors in the sector last year.
Indian authorities including the Enforcement Directorate, the agency that tracks money laundering deals, to probing specific charges against Wal-Mart’s investment of Rs 455.80 crore ($100 million in the then exchange rate) in March 2010 in Cedar Support Services.
Wal-Mart is also facing investigations on alleged violation of Foreign Corrupt Practices Act (FCPA) of the US, which bars bribing officials of foreign governments, in India and other countries including China, Brazil and Mexico.
Wal-Mart India chief Raj Jain left company recently in a sudden move and Bharti Wal-Mart, suspended five executives including its chief financial officer (CFO) and four members of its legal team as part of an ongoing investigation against alleged corrupt practices that the US retail giant has launched globally.