Wal-Mart Stores, Inc. (NYSE: WMT) and JD.Com
Inc(ADR) (NASDAQ: JD) formed a strategic relationship
earlier this month, which will see Wal-Mart's presence in China greatly improved.
As part of the agreement, Wal-Mart will receive 144.95 million newly issued JD.com shares, representing approximately 5 percent
of all shares outstanding. According to a report by the Wall Street
Journal, Wal-Mart has the option to gain observer status at JD.com's board meetings.
Wal-Mart was also given the option, but not the obligation, to raise its stake to 10 percent by buying shares from JD.com's
major shareholders or in the open market.
JD.com's business model of selling directly to the consumer makes it more compatible with Wal-Mart's business model. The
relationship could further help JD.com steal market share away from the country's largest e-commerce platform, Alibaba Group
Holding Ltd (NYSE: BABA).
According to some estimates, China's e-commerce market is expected to surge to $1.1 trillion by 2020 from $589 billion in 2015.
By comparison, total e-commerce sales in the United States stood at just $334 million last year.
The agreement between the two companies also includes a mutual non-compete agreement that is valid for the next eight years.
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