HUM Humana Inc

By Sarah Nassauer 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 31, 2018).

Walmart Inc. may be controlled by one of the world's richest families, but the retailer itself doesn't have much cash on hand.

The company -- famous for running a ruthlessly efficient business that neither spends more than it needs nor borrows much -- ended its fiscal year in January with $6.76 billion in cash and short-term investments.

That means if Walmart were to pursue an acquisition of Humana Inc., it would likely need to borrow tens of billions of dollars -- or issue millions of shares, which could push the founding Walton family's ownership stake below 50%.

Humana has a market value of $37 billion. Walmart could have to pay close to $50 billion to acquire the company, said Ana Gupte, health-care services analyst at Leerink Partners.

Walmart ended its fiscal year with net debt of some $39 billion. Amazon.com Inc., Walmart's fast-growing and high-spending rival, ended 2017 with more than $30 billion in cash and short-term investments, and just $13 billion of net debt.

The Waltons have retained control of the retailer that Sam Walton founded in 1962 through its expansion into a global giant with nearly 12,000 stores from Chicago to Chile to China. The family owned 1.497 billion shares as of Dec. 31, or 50.5% of the total shares outstanding, according to S&P Capital IQ. Nearly all those shares, 1.416 billion, are held by Walton Enterprises LLC, a private holding company that serves as the family's investment vehicle.

The Walton family's stake was around 38% when the Walmart founder died in 1992, but a series of buybacks in the 2000s pushed the stake up over 50%. In recent years, the Waltons have been selling shares to keep their stakes close to 50% and to fund charitable pursuits. In April 2015, Walton Enterprises distributed about 6% of its stake to a new trust to facilitate such sales.

Owning more than 50% frees the family of New York Stock Exchange rules requiring a majority of independent directors, but family members occupy only three of Walmart's 11 board seats, including Chairman Greg Penner, who is married to a Walton heir.

Walmart Chief Executive Doug McMillon isn't a Walton family member, but rather an employee who rose through the leadership ranks over 25 years. Mr. McMillon and other executives regularly brief family members on their plans and seek their input for major moves, according to people familiar with the matter.

The family is led by three of Sam Walton's children, Alice, Jim and Rob, who each ranks among the richest U.S. billionaires based on their Walmart stakes. Rob, the eldest son, served as chairman after his father and still has a seat on the board. Jim's son, Steuart Walton, is the first of Sam Walton's grandchildren to sit on the board, replacing his father there in 2016.

A Humana deal would be the biggest acquisition by far for the Walton family and the board, which have resisted previous major structural moves, such as splitting off the Sam's Club warehouse division from the core retailing chain, according to people familiar with the matter. In 2016, the board agreed to pay $3 billion in cash and $300 million in Walmart shares for Jet.com, at the time the biggest-ever purchase of a U.S. e-commerce startup.

Write to Sarah Nassauer at sarah.nassauer@wsj.com

(END) Dow Jones Newswires

March 31, 2018 02:47 ET (06:47 GMT)

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