Wal-Mart buys 51% majority stake in Massmart

Massmart has received written notice from US firm Walmart of its firm intention to make an all cash offer to acquire a 51 percent stake in the SA retailer.

Wal-Mart Stores offered 16.5 billion rand ($2.32 billion) to buy 51% of South Africa’s Massmart Holdings Ltd., marking the U.S.-based retailer’s first foray into sub-Saharan Africa’s growing retail market.

[MASSMART]Massmart’s 288 stores include Game for general merchandise, Builders Warehouse and the Makro warehouse club.

“The more we learn about South Africa and the surrounding countries the more we are convinced that this is an important region with attractive growth characteristics,” Doug McMillon, president and chief executive of Wal-Mart International, said Monday.

“This combination fits perfectly with our strategy to enter high-growth markets in which we can apply our global expertise and generate strong returns.”

Africa is attracting foreign companies keen to sell to an increasingly affluent population. Yet European multinationals including Carrefour SA of France, Tesco PLC of the U.K. and Metro AG of Germany have yet to venture south of the Sahara.

Wal-Mart and Massmart disclosed in late September that they were discussing a possible deal, considering a 100% buyout by Wal-Mart. But Massmart Chief Financial Officer Guy Hayward said some international shareholders wanted to retain exposure to Massmart and that the government had hoped a deal could be structured to maintain a local listing.

Mr. Hayward said it would be easier to gain the support of at least 75% of Massmart shareholders if Wal-Mart bought majority control. Wal-Mart, based in Bentonville, Ark., has structured its global acquisitions in a variety of ways. It owns 100% of its Asda operations in the U.K. and 68% of Walmart de Mexico.

“Around the world, companies certainly adopt some of the Wal-Mart culture, but they also do have their own culture,” Massmart CEO Grant Pattison said. “Not everyone comes in in the morning and has a rah-rah meeting.…Not everyone does the Wal-Mart cheer.” Mr. Pattison said Massmart’s management in South Africa will continue to run the company and will maintain its strategy, including the continued expansion into the region “as fast as we can go.”

Massmart operates several wholesale and retail chains, including Game for general merchandise, Builders Warehouse for construction and home improvement, and the Makro warehouse-club stores.

The bulk of the company’s 288 stores are in South Africa, although it also operates in 13 other sub-Saharan countries.

There have been no discussions on rebranding operations, Mr. Pattison said. The first sign of change consumers are likely to see is the introduction of new products, including private-label branded goods and the sale of more food in chains, including Makro, he said.

Massmart’s board recommended that shareholders accept 148 rand ($20.78) a share, a premium of 19% to the 30-day average for the shares until Sept. 23, just before the companies announced they were in discussions. Massmart’s shares would remain listed in Johannesburg.

Massmart said institutional shareholders representing 35% of its shares agreed to tender their shares and a further 15% gave nonbinding support.

The South Africa Commercial, Catering and Allied Workers Union has expressed concern about the deal and accused the U.S. company of antiunion activities. The union also has said it is concerned about Wal-Mart’s possible impact on local suppliers and manufacturers.

The union, which has 80,000 members and last month started an “Anti-Walmart Campaign,” said Monday it plans to participate in the antitrust review of the deal. Union spokesman Mike Abrahams said there has been no meeting with either company since early October.

“We have instructed a firm of attorneys to represent us in the legal process,” he said. “As for strike action, this will be determined by the unfolding of the campaign and it shouldn’t be excluded.”

Mr. Pattison said Massmart has good relationships with unions and that management would be available to discuss the planned deal.

Andy Bond, a regional executive vice president at Wal-Mart, said the company would honor all existing labor contracts and local labor laws.

The takeover is subject to approval by South Africa’s Competition Commission, Reserve Bank and other South African regulators.

[MASSMART]
If approved, the transaction promises to be very positive for the regional economy, facilitating job creation, providing new opportunities for small and medium businesses and improving competitiveness.
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