Dive Brief:

• Walmart says it’s in talks with a small number of investors to sell its majority stake in its U.K. supermarket Asda, according to a statement from the companies. The U.S. retailer hopes to retain a share of the business if a sale were to happen.
• “Following inbound interest, Walmart and Asda can confirm that we are currently considering whether there is an opportunity for a third party to invest in Asda, alongside Walmart, in order to support and accelerate the delivery of Asda’s strategy and position Asda for long-term success," the retailers said in the statement posted to Asda's site Wednesday. 
• An alternative would be for Walmart to take Asda public. Asda employees were reportedly informed last year that Walmart is exploring this option, and in the statement the retailers added the U.S. chain “firmly believes” an IPO is an attractive strategy for Asda.  

Dive Insight:

Walmart very much wants to minimize its exposure in the cutthroat U.K. grocery market right now and focus more on growth regions like the U.S., Mexico, India and China. A sale would accomplish this and provide additional funds the company could funnel into its evolving U.S. store and online operations. According to reporting from The Financial Times, however, a public offering is the more attractive alternative for Walmart.

All this activity come several months after the retailer’s failed attempt to merge Asda and Sainsbury’s in April 2019. Britain’s Competition and Markets Authority (CMA) blocked the merger due to concerns over higher prices, lower quality and what it perceived would be a “poor shopping experience."

A few months later, Asda’s CEO Roger Burnley said a stock flotation could happen in two years. Analysts, meanwhile, have said Walmart doesn't want to retain its Asda stake, but speculated its buyer would need to be a foreign company because any major U.K. food retailer would face the same regulatory issues.

"It would look unlikely that other major players in the U.K. would consider [the sale], given the strictness the CMA has displayed," Patrick O’Brien, U.K. retail research director at GlobalData, wrote in an email sent to Grocery Dive last year. "It opens the possibility of private equity or floating the business, or a foreign retailer entering the market. Amazon will always be speculated about, but we do not believe that taking on a major physical food presence in the U.K. fits with its strategy.

Asda's sales have steadily declined since December 2018 and contributed to 0.6% decline in sales at Walmart’s international division in fiscal 2019. The expansion of discounters Lidl and Aldi has been particularly disruptive to the conventional chain's business. The two now hold a combined 14.1% market share in the U.K., according to Kantar data.

Walmart has scaled back many of its international ventures including Brazil, where it sold 80% of its operations to private equity company Advent for about $4.5 billion. At the same time, the world’s largest retailer has invested in other international businesses like India’s online retailer Flipkart, China’s JD.com and Japan’s Rakuten.