Cash Burning a Hole in Wal-Mart's Pocket?

"Wal-Mart's management is looking at every piece of their business to make sure nothing is dragging them behind," said Richard Hastings, a retail analyst with credit agency Bernard Sands. But he added, "Berkshire wouldn't be interested in McLane unless they saw it fitting into their long-term investment strategy."

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Wal-Mart agreed on Friday to sell McLane to Warren Buffett's conglomerate for about $1.45 billion. The deal, which is subject to regulatory approval, is expected to close within 30 days.

Wal-Mart originally acquired Temple, Texas-based McLane in 1990 for about $300 million in cash. Since then the company has grown its sales from $3 billion to about $14.9 billion in Wal-Mart's just-completed fiscal year. McLane also sells about $7.2 billion worth of services to Wal-Mart.

Wal-Mart generally does not break out McLane's bottom line, but Wal-Mart spokesman Tom Williams said McLane has posted has posted profits ranging from $190 million to $250 million over the "last few years." The sale of McLane will depress Wal-Mart's earnings by 1 cent per share in the current fiscal year and by 2 cents per share in fiscal 2005, Wal-Mart estimated.

In announcing the deal on Friday, Wal-Mart said the sale of McLane would allow it to focus on its core retail business. Wal-Mart will continue to operate its own distribution business once it sells McLane. But unlike McLane, which serves thousands of third-party stores, Wal-Mart's distribution system only serves its own discount stores, supercenters and warehouse clubs.

"As we grow as a company, our leadership has always focused on what we do," said Williams. "We run stores. This will allow us to focus on what our business is."

That renewed focus on its retail operations may not be a bad thing, especially because the retail giant has posted slowing same-store sales growth in recent months. Wal-Mart's same-store sales, which compare results at outlets open for more than one year, slowed to 0.7% growth in March and have routinely come in below 3% in the last six months, far below the company's historical results.