Mexican Bribery Scandal Could Cost Wal-Mart $4.5 Billion; Shares Down 4%
Wal-Mart shares plunged nearly 4% this morning, as investors weighed allegations that Wal-Mart bribed Mexican officials to quicken growth and then tried to cover up the corruption.
Executives from Wal-Mart’s Mexican subsidiary reportedly used systematic bribery to receive building permits across the country, according to The New York Times story that broke the news Saturday. After Wal-Mart learned about the bribes, it stalled an internal investigation into the situation and failed to promptly report the problems to the U.S. government. The Wal-Mart executive described by The Times as the man directing the illegal operations, Eduardo Castro-Wright, now serves as a vice president at the company, set to retire in July.
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An UBS analysis of previous FCPA violations show a typical investigation slogs on for two to six years with little day-to-day impact on the offending company’s operations. Past SEC and Justice Department penalties are usually about 1% to 2% of annual sales. In 2011, this would mean at least a $4.5 billion, or 77 cents per share, penalty for Wal-Mart, the world’s largest retailer and the biggest private employer in Mexico.
The greater impact will be on Wal-Mart’s Mexican growth. A slowdown in new store openings could mean a 5% decrease in growth, a $1.3 billion loss, according to the UBS analysis. Wal-Mart has beaten rivals to the Mexican market. Its store count there has soared 135% in five years, as the market now accounts for 6% of total revenue.
http://www.forbes.com/sites/abrambrown/2012/04/23/spooked-investors-sink-wal-mart-nearly-5-after-bribery-revelations-at-least-4-5b-penalty-likely/