Byline: Joanna Ramey

WASHINGTON — Wal-Mart Stores said it is negotiating to buy a direct equity stake in Cifra SA, Mexico’s leading discount retailer and Wal-Mart’s joint-venture partner of six years.
Neither chain would provide details, but financial analysts said they had suspected a deal was brewing since Cifra’s stock has been trading on the Mexican Bolsa at more than 30 percent above year-ago levels.
“It makes sense,” said Gustavo Teran, an analyst with BBV Latinvest Securities Ltd. “Wal-Mart is loaded with cash and they see long-term growth in Mexico as the U.S. retail market continues to grow at a slow rate.”
Patricia Tyler, an analyst with SBC Warburg Inc., said she does not expect Wal-Mart — which already receives about 40 percent of Cifra’s sales through the joint venture — to try to buy the entire company. Tyler thinks the Bentonville, Ark.-based chain is angling for up to 15 percent of Cifra’s voting shares.
“By buying into Cifra directly, it makes Wal-Mart financially stronger in Mexico and it also may mean they can bump up their expansion plans,” Tyler said, adding that the Wal-Mart’s formats have been the engines of Cifra’s growth. Mexico, Canada and Puerto Rico are Wal-Mart’s most mature international markets and the ones in which they make a profit abroad, a spokesman for the retailer said this month.
The Wal-Mart/Cifra team operates 152 stores in Mexico, including 21 Wal-Mart Supercenters and 28 Sam’s Clubs. The joint venture has increased by 125 percent the selling space Cifra had before the Wal-Mart alliance, according to Cifra’s 1996 annual report. Together, the two companies have invested $1.48 billion in the effort.
Cifra operates 373 stores and restaurants. At current exchange rates, Cifra last year had sales of $2.9 billion, a 10 percent decline. Cifra outnumbers its competitors in sales and number of stores; its rivals include Commercial Mexicana, which until recently had a joint venture with Price Club; Soriana, and Grupo Gigante, which has a joint venture with the French hypermarket Carrefour.
The Wal-Mart/Cifra union has proven compatible. Each chain is still controlled by family founders, the Arangos at Cifra and the Waltons at Wal-Mart, whose businesses were started in the Sixties and thrived by having a lot of cash on hand while expanding aggressively.
Cifra’s knowledge of Mexico’s consumers and distribution systems has been complemented by Wal-Mart’s know-how with cutting-edge technology that keeps retail costs in check.

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