Wal-Mart shares drop on New York Times bribery allegations
Wal-Mart, the world's largest retailer, was accused by the New York Times of covering up $24 million in bribes in Mexico. Wal-Mart share prices dropped in early trading Monday.
New York — Wal-Mart Stores Inc shares were down 3.1 percent in early premarket trading on Monday following an article in the New York Times this weekend alleging that the world's largest retailer stymied an internal probe into bribery at its Mexican affiliate, Wal-Mart de Mexico.
BMO Capital Markets analyst Wayne Hood said in a research note that the allegations could hamper the discount chain's future growth 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 US and abroad," Hood wrote in a note on Monday.
According to the New York Times article, in September 2005, a senior Wal-Mart lawyer was alerted by a former executive at Wal-Mart de Mexico of the use of bribery to speed up store openings in Mexico.
Wal-Mart then sent investigators to Mexico City and found a paper trail of hundreds of suspect payments totaling more than $24 million, but the company's leaders shut down the investigation and neglected to notify U.S. or Mexican law enforcement officials, the Times reported.
Citigroup 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."
Legal and retail experts said that the allegations, if proven true, could badly hamper the company and its management for years. They could lead to a time-consuming global probe, substantial financial penalties paid to U.S. authorities, and the departure of some executives.
According to the Times, current Wal-Mart Chief Executive Mike Duke and former CEO Lee Scott, who still sits on the company's board, were among senior executives allegedly aware of the situation.
"Ultimately, it falls under his watch," Brian Sozzi, chief equity analyst at NBG, a firm that does investment research, said of Scott. "It falls under Mike Duke, too."
Other analysts said that Wal-Mart's structure means any drastic action, such as firings of top executives, may not happen quickly.
"In many companies people would be asked to step down," said Consumer Edge Research analyst Faye Landes. "Two complicating factors here are the ongoing nature of the investigation and the composition of the board and the shareholder base."
The shareholder base includes the family of founder Sam Walton, which owns nearly 50 percent of Wal-Mart's shares, making it difficult for any activist shareholders to push for any immediate changes. Walton's eldest son, Chairman S. Robson Walton, known as Rob, and his younger brother Jim are also on the board.
Wal-Mart said in a statement on Saturday it was "deeply concerned" about the allegations in the Times report and began an investigation into its compliance with anti-bribery laws last autumn. It declined to make any executives available for comment, and said the investigation was continuing.