Family takeover sells other Wal-Mart owners short
By Lisa Lee
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
NEW YORK — Sam Walton will soon be back. The Wal-Mart founder’s descendants are poised to see their stake in the $190 billion U.S. retailer creep above 50 percent, with little fanfare. That’s thanks to the company’s latest $15 billion share buyback program. The watershed brings governance risks, and investors deserve better.
Wal-Mart’s founding family has always had a big say in the boardroom of the world’s largest retailer. After Sam Walton passed away in 1992, family members retained a stake of around 38 percent from the mid-1990s to the mid-2000s. Starting in 2003, however, a series of big share buybacks — which they largely avoided — began to push the family stake higher, to 43 percent in 2008 and now to 49 percent, according to the latest filings.
Now the Waltons only need sit still to maneuver something like a premium-free takeover. The company’s latest buyback plan, announced last week, makes this a near certainty. If the buyback takes place at around the current share price and the family neither sells nor buys, its ownership will climb to 53 percent. Even if Wal-Mart shares suddenly burst out of their years-long trading range and soared 50 percent, completing the repurchase would still tip majority control into the family’s hands.
A shift from just under 50 percent ownership to just over may seem of little practical consequence. But the impact goes beyond the cosmetic. Once the 50 percent rubicon is crossed, for example, New York Stock Exchange rules would no longer require Wal-Mart to ensure a majority of its board directors are independent. The company says it will do that anyway. But that doesn’t really mean anything more than “trust us.” Investors might want a bit more certainty.
Better yet, maybe there’s an alternative to a buyback. The new plan follows another $15 billion program announced a year ago, of which all but $2 billion was spent, and other big outlays before that. But investors haven’t got too excited: Wal-Mart’s stock has lagged Costco’s, say, as well as the broader S&P index over one and two-year timeframes. The company’s first-quarter dividend amounted to $1.3 billion. If it really has $15 billion to spare, jacking up its payout — and keeping the family’s holding under 50 percent — would do the job.