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Wal-Mart Shaken by Bribery Probe, Shares Plunge: Related Content
Wal-Mart Shaken by Bribery Probe, Shares Plunge: Related Content
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By Jessica Wohl and Elinor Comlay | Reuters 25 minutes ago
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People walk past a Wal-Mart store with a banner reading "Low prices, every day, in
everything" in Mexico City April 21, 2012. REUTERS/Bernardo Montoya
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Re-useable Walmart bags are seen in a newly opened Walmart Neighborhood Market in
Chicago in this September 21, 2011 file photo. REUTERS/Jim Young/Files
CHICAGO/MEXICO CITY (Reuters) - Wal-Mart Stores Inc lost $10 billion of its market value
on Monday on concerns that a bribery investigation in Mexico could be very costly and hinder its
plans to grow.
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.
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.
Two Democratic U.S. lawmakers, Elijah Cummings and Henry Waxman, said they were
launching an investigation into the matter and sent a letter to Duke requesting a meeting.
The Times report "raises significant questions about the actions of top company officials in the
United States who reportedly tried to disregard substantial evidence of abuse," Cummings and
Waxman said in a statement.
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.
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.
"Entering additional countries is a cornerstone of Wal-Mart's growth strategy," Consumer Edge
Research analyst Faye Landes wrote in a research note. "We can foresee the authorities in some
key countries, notably India, becoming dramatically less welcoming to Wal-Mart following the
release of the allegations."
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.
"FCPA cases are both extensive and expensive, including penalties for individuals/entities for
both anti-bribery and accounting provisions," said Deutsche Bank retail analyst Charles Grom.
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.
In a memo entitled "Integrity" sent to Wal-Mart employees on Monday, Duke said the company
takes compliance with FCPA "very seriously, and we will not tolerate violations anywhere or at
any level of the company." The memo included a link to Wal-Mart's global ethics office website
and phone hotline.
"My firm expectation is that Walmart will always follow the law, but my expectation also goes
far beyond following the law. We will do what's right - not just what is legal - and our actions
will show the utmost integrity at all times," he said.
EXPENSIVE AND EXTENSIVE
Two opposition left-wing senators in Mexico called for an investigation, though prosecutors said
they would do so only if asked by the Ministry of Finance or Ministry of the Economy.
"If licenses were given out where they shouldn't have been, there's fraud not only in the cities
where that happened, but also there could have been fiscal fraud," Francisco Javier Castellon of
the Party of the Democratic Revolution (PRD) was quoted as saying in the newspaper Rumbo de
Mexico.
Leftist presidential candidate Andres Manuel Lopez Obrador said on Sunday that the allegations
showed the government was "rotten," and he expressed dismay that the case was so far only
being investigated outside Mexico.
Bribery and corruption are pervasive in Mexico, where the justice system is weak and lowerlevel public sector workers earn relatively low salaries. A study last year by Transparency
International showed that Mexican companies were perceived to be the third-most likely behind
those in China and Russia to pay bribes abroad.
BMO Capital Markets analyst Wayne Hood said in a research note that Wal-Mart's growth could
be hurt both domestically and abroad. "Articles like this will be used against the company by
activists and competitors when it attempts to open stores in the U.S. and abroad," Hood wrote in
a note on Monday.
But others said the share drop could actually provide a buying opportunity, given that Wal-Mart
shares had been trading near a 52-week high on optimism over the recovery in its U.S. business.
Options market activity also suggested a bullish bias on Wal-Mart stock.
Citigroup analysts said in a note that, after discussions with Wal-Mart, it believed that the retailer
would conduct a "thorough and transparent" review and said any pressure on the stock was "an
enhanced buying opportunity."
The California State Teachers' Retirement System (CalSTRS), which currently holds over 5.5
million shares of Wal-Mart Stores, will continue to keep its exposure to the retail giant "until we
find out what happens," CalSTRS's director of corporate governance, Anne Sheehan, told
Reuters.
Some hedge fund managers said Walmex was the more attractive target for short sellers. Walmex
said on Monday it does not believe the allegations will hurt its business.
"Wal-Mart is considered one of the best companies in terms of transparency in Mexico, and that
is why it was so hard-hit," said Jorge Lagunas, a portfolio manager at brokerage Interacciones in
Mexico City.
SHAREHOLDER LAWSUITS
Lawyers said Wal-Mart could face shareholder lawsuits accusing the company of securities fraud
for having inflated its stock price by misleading investors about its FCPA compliance. Cosmetics
maker Avon Products Inc faces similar lawsuits over its activities in China.
Wal-Mart executives and directors, like their Avon counterparts, could face "derivative" lawsuits
accusing them of covering up or turning a blind eye to the alleged bribes.
These lawsuits seek to force executives, or their insurers, to pay money directly to Wal-Mart for
breaching or ignoring their duties, and for the company to tighten internal controls.
Shareholders could also use the power of the ballot box. At Wal-Mart's June 1 annual meeting,
they could vote out directors they deem responsible for allowing the bribery, including the four
independent directors who comprise the audit committee.
($1 = 13.17 pesos)
(Additional reporting by Jonathan Stempel, Angela Moon and Sam Forgione in New York, Doris
Frankel in Chicago, Karey Wutkowski in Washington, Tom Hals in Delaware, Rachel Uranga
and Cyntia Barrera in Mexico City, Writing by Tiffany Wu; editing by Matthew Lewis)
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55users liked this commentPlease sign in to rate!Please sign in to rate!0users disliked this
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2good 7 hours ago
I think it would be much harder to find a large corporation (or Government) who do NOT
pay bribes as though it is just the way to do business. LARGE amounts of money can
make just about anything possible. Did we ever find out what happened at Lehman
Brothers??? We need not go all the way to Mexico... More
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taylor1277 7 hours ago
of course the are deeply concerned it will hit their pocketbook.and did you see the new ad
walmart is running during april,buy certain foods and they will donate proceeds.i am
pretty sure the prices went up before april,its to help feed the hungry,why not just drop
the price of food which walmart... More
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Gary McWilliams Tulsa, Oklahoma 6 hours ago
I agree with MC......So Walmart got caught bribing officials.....nothing new here. They've
been doing that for years so they can build those abominations in neighborhoods and
destroy the local businesses.....THERE WAS A TIME WHEN MOM AND POP STORES
WERE ALL OVER AMERICA.....and than the lobby... More
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sieben13 7 hours ago
Like the owners didn't know???????? Give me a break ,you wont have hundreds of
thousands of dollars going out and they didn't know.How stupid do they take the public
for .
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VictorW 6 hours ago
I'm not a big fan of Walmart as they destroy small business & import & sell so much shlt
from China but in Mexico bribery is so rampant & if you don't pay, you don't play.
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Calgonman 5 hours ago
Don't expect top executives to get anything more than a slap on the wrist, if that. It will
be those under them and down that will probably get the brunt of the punishment.
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eag 7 hours ago
and this is news because somebody's cut wasn't big enough?
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oldsailor Greensboro, North Carolina 6 hours ago
I would like to see a list of all food items in walmart stores showing where the item was
manufactured. If you'll notice, they lie by telling you "Distributed by".
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