Wal-Mart IPO Set the Stage for Global Expansion

Wal-Mart IPO Set the Stage for Global Expansion
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.

In 1969, Sam Walton was searching for the one thing that was keeping his upstart retailing chain in Bentonville from achieving great things: more money.

Walton and his cadre of executives and store managers had put together an efficient, profitable model that brought big-city discounting on a broad line of department store merchandise to markets that others deemed too small.

The only thing slowing the rollout of more Wal-Mart stores was working capital, and the ambitious retailer was growing increasingly frustrated with the situation.

Mike Smith, syndicate manager for Little Rock’s Stephens Inc. back then, approached Walton with a solution: Take the company public.

The more Smith learned about Wal-Mart’s operations in advance of the initial public offering, the more he was convinced that he had wandered into an epic business story in the making.

“If these guys can take this out of Bentonville and do what they’re doing, they are going to take over the retailing world,” Smith recalled thinking at the time.

Company officials were more worried about taking advantage of regional opportunities and maintaining the pace of opening stores than considering the global possibilities of their labors.

Sales rocketed from $12.7 million in 1968 to $21.5 million 12 months later as more Wal-Mart stores contributed to the revenue stream. But the company needed outside sources of cash to support its growth plans.

“In about ’69, the expansion took off,” said Ron Mayer, vice president and treasurer of the company at the time. “We really were running out of money. We were to the point where we either had to do something as far as an offering or curtail the expansion.”

In preparation for the IPO, a hodge-podge of ownership interests in different stores was consolidated under one corporate banner: Wal-Mart Stores Inc.

The corporation represented the merger of 78 partners that owned pieces of 32 stores, with the Walton family owning a majority stake in each. The stores also were a mixed bag of Wal-Mart Discount City, Ben Franklin, Walton’s Family Center and Ben Franklin Family Center.

In the years leading up to the IPO on Oct. 1, 1970, the company turned to local bankers for funding the construction of its stores and regional lenders for working capital.

“We financed the growth strictly through the small banks in the towns that we put the stores in,” Mayer said. “That was the catalyst for getting started.”

Two Arkansas expatriates in key positions helped Walton secure more loans and make the IPO happen. Both would be given seats on Wal-Mart’s board of directors.

James H. Jones, a native of Alpena (Boone County), provided the company with a $1 million loan, first as an executive at Republic National Bank of Dallas and later as president of First National Bank of Commerce in New Orleans.

Jones also alerted Walton to the opportunity to acquire the Bank of Bentonville in 1961 and even arranged for a $350,000 loan to make the deal happen. That purchase provided the Walton family’s entry into banking, which blossomed into today’s Arvest Bank Group.

H.L. “Buck” Remmel, who grew up in Little Rock and was a senior vice president at White Weld & Co., provided Wall Street cachet to Walton’s IPO aspirations.

White Weld & Co., a well-known firm that would be acquired by Merrill Lynch in 1978, joined Stephens Inc. as the lead underwriters among a group of 44 investment firms that signed up to move 300,000 shares of Wal-Mart stock at $16.50 per share.

The bound volume of the documentation associated with the company’s IPO is as thick as a Gutenberg Bible, with 47 numbered tabs.

Stephens started with 30,000 shares in the IPO but ended up moving more Wal-Mart stock than any of the other firms.

“They didn’t know Wal-Mart anywhere near as well as we did, and we were still learning,” said J.D Simpson, a corporate finance exec with Stephens at the time. “I bet 100,000 shares came back to us after the IPO, and we placed it. We were accounting for a majority of the offering.

“We could tell more people about Wal-Mart than anyone in New York, and we knew where to sell it. We were buying it for our customers and ourselves. I sold it to every friend I had. By the time it was all done, they thought I was a genius. We were at the right place at the right time.”

Jack Stephens, president of Stephens, was named to the Wal-Mart board of directors in recognition of the company’s early support and work on the IPO. The net proceeds of the stock offering to Wal-Mart were about $3 million.

“Going public really turned the company loose to grow, and it took a huge load off me,” Sam Walton recalled in his self-titled “Made in America” autobiography published in June 1992, two months after his death.

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.