BUSINESS WEEK ONLINE
February 25, 1998


OUT OF INDONESIA: WAL-MART SPLITS WITH LIPPO


Edited by Douglas Harbrecht

Wal-Mart Stores Inc. confirmed on Wednesday, Feb. 25, that it's trying to end a franchise agreement with a unit of Indonesia's powerful Lippo Group. The partners operate two stores in Jakarta under the Wal-Mart banner. About 13 U.S. expatriates, who supported the store operations, have left Indonesia, a Wal-Mart spokesman says.

Wal-Mart claims that Lippo violated the franchise agreement when, without Wal-Mart's prior knowledge, it bought a controlling stake in rival discounter Matahari. One of Matahari's Mega M stores is in the same mall as a Wal-Mart supercenter in Jakarta. Wal-Mart feared that the acquisition would give its rival access to proprietary information.

"There was a clear noncompete clause" in the franchise agreement, says Wal-Mart spokesman Dale Ingram. Plus, he claims that Lippo owes Wal-Mart millions of dollars in franchise fees. The world's largest retailer is seeking arbitration in U.S. District Court in San Francisco to settle the dispute.

Lippo, meanwhile, has sued Wal-Mart in West Jakarta District Court. It's accusing the retailing giant of financial misrepresentations and is seeking to prevent Wal-Mart from abandoning the business. Wal-Mart calls the allegations "completely fiction."

Lippo has figured prominently in ongoing federal and congressional investigations of finance abuses during the 1996 U.S. Presidential campaign. The Riady family -- founders of Lippo Group -- is close to President Clinton, and almost $1 million in campaign contributions from Riady family members and employees had to be returned by the Democratic National Committee because of their foreign origin.

Lippo signed a flurry of ambitious joint-venture agreements with U.S. companies in the early 1990s. Many have unraveled, with Wal-Mart being the latest. The two partners opened their first store in August, 1996, and a second in January, 1997. These are the only franchised operations in Wal-Mart's international empire, which on Feb. 24 reported operating profits of $262 million for the fiscal year -- up from $24 million in the prior year. Wal-Mart operates or franchises more than 600 international stores, with its biggest concentration in Mexico and Canada.

Wal-Mart has clashed with an Asian partner before. In late 1995, after only a year, it split with a unit of Charoen Pokphand Group of Thailand. CP took over three small warehouse clubs that had been opened in Hong Kong. Each side blamed the other for demanding too much control.

Wal-Mart spokesman Ingram says Wal-Mart is "still committed to Asia." It operates three stores in China and says it's looking to expand in other parts of the Far East.

By Wendy Zellner in Dallas

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