Wal-Mart IPO Set the Stage for Global Expansion

by George Waldon  on Monday, Jul. 2, 2012 12:00 am  

Mike Smith, left, was syndicate manager and J.D. Simpson was a corporate finance executive when they led the initial public offering of Wal-Mart stock by their employer, Stephens Inc. of Little Rock, in 1970.

Walton was relieved to get shed of the family’s personal guarantees on debt that enabled the company to make modest expansions. However, his wife didn’t like a non-monetary part of the transaction.

Helen Walton said that if she were going to be mad at her husband for anything, it would be the decision to go public and the attendant cost to their family privacy.

“I just hated the idea that we were going to put all our financial interests out there for everybody to see,” she said in his autobiography. “When you go public, they can ask all kinds of questions, and the family gets involved. We just became an open book, and I hated it.”

Little Rock investors and other Stephens clientele represented the largest contingency of Arkansas buyers of the IPO. In his autobiography, Walton indicated the stock offering didn’t receive much support from northwest Arkansas investors, other than individuals affiliated with Wal-Mart.

“I always thought people around here thought that we were doing it with mirrors,” Walton said. “They couldn’t help but think we were just lucky. ... I think it must be human nature that when somebody homegrown gets on to something, the folks around them sometimes are the last to recognize it.”

The IPO originally was planned for May 1970 but had to be delayed, a move that sent Sam Walton scrambling for short-term money to keep the expansion timetable on track.

“The market wasn’t very good in the mid part of ’70 and, all of a sudden, it switched,” said Mayer, the first Wal-Mart executive to hold the title of CEO. “We were fortunate enough to be able to get out [the IPO], and we had some good underwriters.”

While waiting for the market to improve, Walton worked to line up a loan with two big life insurance companies: Prudential and Massachusetts Mutual.

He ended up striking a deal for a 15-year loan of $2.5 million with Mass Mutual. But Wal-Mart was required to give the insurer a warrant for 45,000 shares to land the crucial funding.

The stock option made Mass Mutual the first huge winner in the history of Wal-Mart’s shareholder sweepstakes. The stock split twice 2-for-1 before Mass Mutual liquidated its Wal-Mart holdings in 1972, turning 45,000 shares into 180,000.

At a price of $47.50, the stock produced a handsome profit of $7.8 million in less than two years on a $742,500 investment for Mass Mutual. Nine more 2-for-1 stock splits would follow as Wal-Mart grew into the largest retailer in the world.

“It was a once-in-a-lifetime situation, I guarantee you,” Mayer said.



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