emerging deal

Why Walmart would want to buy Turkish retailer Migros

December 13, 2012
December 13, 2012

Walmart is under investigation for corruption in Brazil, China, India, and Mexico, and is rethinking its overseas strategy.

Sounds like the perfect time to enter another emerging market.

The US retailing giant is in talks to buy an 80% stake in Turkey’s Migros Ticaret from British private equity group BC Partners, the Financial Times has reported (paywall). Walmart spokesman Kevin Gardner, in an email to Quartz, said the company would not comment on “rumors and speculation.”

Why would Walmart even be considering such a move?

International acquisitions have been a core part of Walmart’s strategy, despite the company’s recent efforts to act disinterested in overseas purchases. In March, Walmart’s international division chief financial officer Cathy Smith called acquisitions the company’s last priority for international growth. That same month, the company finalized its purchase of South Africa’s Massmart for $2.4 billion. As of Nov. 30, Walmart had 5,964 international units in Central and South America, Africa, and East Asia.

Turkey might be a well-placed market for Walmart and Migros a potentially promising deal. (Mi is French for “mid-way” and gros means “wholesale.”) If the acquisition goes through, Wal-Mart will own the 888 Migros stores throughout Turkey; the Turkish retailer also operates stores in Kazakhstan, Kyrgyzstan and Macedonia, part of the globe the world’s largest retailer has yet to penetrate.

Migros saw sales revenue grow 11.5% in 2011, to $3.4 billion. Analysts are optimistic about the growth of Turkey’s “fast-moving consumer goods” market because of the country’s young and rapidly expanding population, and its low but growing penetration of organized retail. Financial services firm Erste Group estimates the market will grow 11% by the end of 2015 and see more mergers and acquisitions that will consolidate the sector.

Still, emerging markets haven’t been great success stories for Walmart and other retailers. Walmart’s division in China is getting bested by local Chinese retailer RT-Mart, which wins over Chinese consumers by combining big box retail with the feel of local street markets. In Turkey, France’s Carrefour is reviewing whether to stay in the country through a tie-up with Sabanci, another Turkish retailer.

A formal offer would likely be made in the first quarter of next year, sources say. The deal would value Migros at about $4 billion, including debt.

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