Mexico blamed Walmart's size, access to rivals' data in blocking app deal

MEXICO CITY (Reuters) - Mexican officials blocked Walmart Inc’s deal to buy delivery app Cornershop because Walmart could not guarantee a level playing field for rival retailers, whose customers use the app to order groceries and other goods, according to an official document and an interview with the top competition regulator this week.

Cornershop operates in Mexico and Chile, promoting the app as providing delivery of “groceries to your front door in one hour” from retailers including Costco Wholesale Corp, Chedraui and Walmart. It charges retail chains a commission for its services.

Walmart had struck a deal to buy the popular app for $225 million in a bid to boost its e-commerce ambitions in Mexico, one of the retailer’s priority markets, and better compete with online.

The deal would have put Walmart in the unusual position of owning an online platform selling its own merchandise alongside goods sold by rivals, with potential access to data about orders placed with competitors.

That raised a red flag for the regulator in Mexico, where Walmart’s Walmex unit is already a dominant bricks-and-mortar retailer. Walmex operates 2,459 stores in Mexico, and is the country’s largest supermarket chain by far.

After months of analysis, Mexico’s Federal Economic Competition Commission (Cofece) last week opposed the deal, saying Walmart and Cornershop could “displace” competitors.

“It all has to do with Walmart’s size,” Cofece’s president, Alejandra Palacios, told Reuters in an interview at the regulator’s headquarters. “If you’re going to discriminate against or help one of the parties, you’re usually going to help the big one.”

A 92-page resolution, obtained independently by Reuters ahead of publication, underlines the depth of Cofece’s worries about the deal, which now likely will be tough for Walmart to revive.

Walmart made a number of proposals to address Cofece’s concerns, including not allowing overlapping board members between Walmart and Cornershop, according to the document. The commission rebuffed the attempts as too weak to guarantee they could be carried out properly.

“It is not clear to the commission that there would be independence between the Cornershop MX business and the interests of Walmart,” the document says. “Walmart has incentives to favor its supermarkets and price clubs or bestow unfavorable treatment to its competitors.”