Jet.com, the e-commerce startup Walmart agreed to buy for $3.3 billion this past Monday in a challenge to Amazon, has gotten some good press for its company culture, which CEO Marc Lore has described as centered around such values as transparency and employee ownership. As we know, problems meshing the acquired company’s culture with that of its new parent can be fatal to mergers and acquisitions—a risk too often neglected in these deals—and it’s not hard to imagine some pain in the process of integrating a culturally innovative young company into the definition of a legacy corporation. From a financial perspective, for instance, the Motley Fool’s Jamal Carnette fears that Jet’s startup mentality of maximizing revenue will clash with what he calls Walmart’s “ruthless cost-cutting culture”:
By all accounts, the cultural differences between Wal-Mart and Jet could not be more different. Wal-Mart, an established retailer, is mostly worried about their bottom-line results, paying billions for share buybacks in an attempt to boost their earnings-per-share figures. Jet has continued to act like an aggressive start-up, more concerned with transactions and user growth at the expense of profits. …
[Jet] has been adding 400,000 shoppers monthly and was on pace to sell $1 billion in merchandise annually. However, the company is unprofitable, and its goal of undercutting Amazon’s prices would make it hard to grow margins. Last year, the company abandoned its goal of a $50 subscription fee, much like Amazon’s Prime service, in an attempt to expand its shopper base. It appears Jet has sacrificed profit for growth. Earlier this year, Wal-Mart did the exact opposite, choosing higher profit margins over revenue by closing 269 worldwide stores, many of which were the company’s smaller Walmart Express concept and underperforming stores in Brazil.
On the other hand, this deal was very much about talent, specifically that of Lore himself, who is taking over Walmart’s entire online operation, replacing Neil Ashe as CEO of e-commerce. In fact, Bloomberg reported before the deal went down that its completion hinged on whether Lore agreed to take the job and keep it for several years. At Recode, Jason Del Ray explains how Walmart’s agreement with Lore keeps him committed, and how much money he stands to make if he sees it through:
Lore’s agreement with Walmart requires him to stay with the world’s biggest retailer for at least five years, according to a person familiar with the deal. More typically, executives from acquired companies are only tied up for two or three years. If Lore doesn’t stay for all five years, he’d forfeit a chunk of his giant payout both in cash and stock. A portion of the $3 billion in cash Walmart is coughing up will be paid out over five years. The same goes for the additional $300 million in stock tied to the incentive plan for Lore and other Jet executives.
Lore could make an estimated $750 million to $1 billion, with a B, if he honors his full agreement.
Lore is of course sending all the right signals and expressing excitement about his new role, but Del Ray also questions whether the leader himself will be a good cultural fit at Walmart:
People who know Lore well still wonder how well he will do in Walmart’s big-company culture, where the vast majority of revenue still comes from brick-and-mortar stores. These people also question whether Lore can get a larger organization to move anywhere fast as Jet.