Walmart ’s reputation for low prices will be burnished by the sale of its U.K. business for—on paper—less than it paid for it almost two decades ago. In a tough market, though, this may have been the least bad option open to the U.S. retail behemoth.

Walmart bought the U.K.’s third-largest grocery chain, Asda, in 1999 for $11.4 billion, including net debt, outbidding a local rival. It is now merging Asda with Sainsbury, the U.K.’s second-largest grocery chain, to create a market leader. At current market prices, the deal values Asda at almost $11 billion. That is roughly 11 times operating profits, compared with 18 times when it changed hands in 1999, according to FactSet.

Specifically, Walmart gets almost £3 billion ($4.14 billion) in cash and a 42% stake in the combined entity. This stake was worth £4.3 billion when the deal was announced before the Monday open, but by midday was worth roughly £5 billion following a surge in Sainsbury stock. Walmart is tied into the stake for four years, but can reduce it to just under 30% after two.

So this is a partial Brexit for Walmart, bringing some cash now and the hope that a merger will transform the prospects of its remaining U.K. investment. It is reminiscent of General Motors ’ decision to quit Europe last year by selling its local operation to Peugeot in exchange for cash and share warrants.

Like GM, Walmart is under pressure from tech-industry rivals. Notably, ’s $13.7 billion purchase of Whole Foods last year triggered soul-searching among supermarkets. Walmart’s response seems to have been to focus on its core U.S. franchise and select growth markets. Judith McKenna, the new boss of Walmart’s operations outside the U.S., said the company was being “thoughtful” about its portfolio, “perhaps in a way we haven’t done before.”

The U.K. grocery market was comfortably profitable for the first decade of Walmart’s involvement. Then the big chains, Asda included, engaged in a “space race” to build new supermarkets. Combined with the aggressive expansion of German discounters Aldi and Lidl, this caused a collapse in profitability. Aldi and Lidl now have their sights on the U.S.

U.K. market leader Tesco fought back in 2016 by cutting prices and taking market share, mainly from Asda. It was Asda’s turn to cut prices last year. It has now reported four periods of like-for-like sales growth, but at the expense of profits. It is hardly surprising Walmart got tired of this fight.

The hope that the merger could help isn’t fanciful. Supermarkets are a scale game. Sainsbury and Asda have already identified £500 million of cost savings, mainly by comparing their sourcing books and taking the lower price for comparable products. That said, the deal will face a protracted antitrust review. And even assuming it goes through with minimal remedies, Tesco’s experience shows that market leadership doesn’t guarantee superior performance.

Walmart’s foray into the U.K. hasn’t been a success, but it still has a chance to avoid a disaster.

Source: The Wall Street Journal