Post date: Apr 23, 2012 9:35:53 PM
In a sign that the problem was widening for the world's largest retailer, lawmakers in the United States and Mexico called on authorities to investigate allegations in a New York Times article that Wal-Mart de Mexico had engaged in a campaign of bribery to build its business.
"I think there's an investor base that owns Wal-Mart strictly for its international growth prospects and anytime you see some of these questionable practices at one international segment then that sort of raises questions on how can these guys grow at other international segments if they relied on those types of business practices to grow that business. It clearly questions some of the growth prospects in some of those other countries, say China or India," said Michael Keara, an equity analyst at Morningstar.
Legal and retail experts said the allegations, if true, could violate the U.S. Foreign Corrupt Practices Act (FCPA) - which forbids bribes to foreign government officials - and badly hamper Wal-Mart and its management for years.
They also raised concerns about Wal-Mart Chief Executive Mike Duke and former CEO Lee Scott who were among senior executives allegedly aware of the situation. Scott still sits on the company's board.
"What it does is it highlights some of the pitfalls of international expansion, but also highlights the fact that a lot of these senior executives are under tremendous amount of pressure to continue growth. I think out of those two overarching theses, this sort of plays into that. But again, in terms of stock, the five percent today, that's probably expected. Whether or not this stock goes further down from here, it depends on how long the investigation is and who it leads to," said Keara.
"Anytime you get management changes at the top, it's not a good thing for the stock, but in the end what's going to determine Wal-Mart's share price is their performance at U.S. domestic stores," he added.
Shares of Wal-Mart fell 4.7 percent to $59.54, wiping some $10 billion off their market value. The stock is a component of the Dow Jones industrials index, which ended 0.8 percent lower.
Shares of Wal-Mart de Mexico, which is 69 percent-owned by Wal-Mart and known as Walmex, fell 12 percent to 37.89 pesos ($2.88). The drop wiped out a 12 percent year-to-date gain in the second-most-weighted stock on Mexico's IPC index.
The New York Times reported on Saturday that a senior Wal-Mart lawyer received an email from a former Walmex executive in September 2005 that described how the Mexican company had paid bribes to obtain permits to build stores in the country.
According to the Times, Wal-Mart sent investigators to Mexico City and found a paper trail of suspect payments totaling more than $24 million. But the company's leaders shut down the probe and did not notify U.S. or Mexican law enforcement officials until after the newspaper informed Wal-Mart that it was looking into the issue, the Times reported.
Wal-Mart said it was deeply concerned about the matter and began an investigation into its FCPA compliance last fall. It said it disclosed the probe to the U.S. Department of Justice and the Securities and Exchange Commission, and declined to give any more details or to make executives available for comment.
Wal-Mart stock drops amid bribery investigation in Mexico.
MEXICO (REUTERS) - Wal-Mart Stores Inc lost $10 billion (USD) of its market value on Monday (April 23) on concerns that a bribery investigation in Mexico could be very costly and hinder its plans to grow.