Wal-Mart may scale back bid and keep Massmart listed

By David Dolan and Brad Dorfman

JOHANNESBURG/CHICAGO (BestGrowthStock) – Wal-Mart Stores Inc (WMT.N: ), the world’s biggest retailer, may scale back its $4 billion takeover bid for Massmart (MSMJ.J: ) and buy a more than 50 percent stake instead, a move that could keep the South African firm listed in Johannesburg.

The change follows consultations with “major Massmart shareholders and key South African stakeholders,” Massmart said in a statement on Thursday, which did not give details on the discussions Wal-Mart has had.

A reduced stake would still make Wal-Mart the first major international retailer in South Africa. The company called Massmart, the country’s third-largest retailer, a “compelling growth opportunity” that represents a solid platform for African expansion.

Wal-Mart spokesman Kevin Gardner said due diligence was progressing “very satisfactorily.”

A revised bid could reflect dissatisfaction from some Massmart shareholders at the proposed takeover, given the immense potential for growth in Africa, where the population is expected to reach 2 billion by 2050.

“I think what (Massmart shareholders) are saying is: If this deal is so good for Wal-Mart, why should we be selling?” said Syd Vianello, an analyst at Nedcor Securities. That resistance could force Wal-Mart into buying only a partial stake, allowing Massmart shareholders to keep their exposure to the company, he said.

Wal-Mart shares fell 7 cents to $53.80 on the New York Stock Exchange at mid-afternoon. Massmart initially fell more than 2 percent on the news before paring losses to 0.5 percent at 138.01 rand.

Wal-Mart’s offer price was still 148 rand per share, Massmart said.

The reference to Wal-Mart’s discussions with key South African stakeholders could also signal some local resistance to having Massmart taken over by a company with a reputation for making things tough on smaller competitors, analysts said.

South Africa’s government last year scuppered a $24 billion tie-up between local telecom MTN Group (MTNJ.J: ) and Bharti Airtel (BRTI.BO: ), due to concern that MTN could lose its national character.

In that deal, listing was also key, as South Africa had pushed for a dual-listed company, something Indian law does not allow.

Like MTN, Massmart’s top shareholder is South Africa’s government pension fund, the Public Investment Corporation (PIC), which holds a little over 9 percent in the retailer.

No one was immediately available for comment at the PIC.

TOO MUCH, TOO SOON?

Doug McMillon, Wal-Mart’s international chief, told analysts in October that the opportunity to enter sub-Saharan Africa, through Massmart, came up sooner than he had anticipated.

If Wal-Mart scaled back its move into the region to the cost of a partial stake, that could please Wal-Mart shareholders who want the company to devote more resources to fix sales at its U.S. stores first.

“It’s clear that there are a lot of problems here (in the United States) that need to be addressed, beyond the holiday season, Wall Street Strategies analyst Brian Sozzi said.

Buying a partial stake would also let Wal-Mart learn about the market.

“In terms of Africa, I think it’s still uncharted territory for the big, international retailers. Acquiring a stake rather than buying Massmart outright could be a less risky and more successful strategy for them,” said Natalie Berg, an analyst at industry research firm Planet Retail in London.

Wal-Mart also has experience entering new markets via partial stakes in local companies. It took a minority stake in Japan’s Seiyu earlier in the decade and gradually increased that, eventually making the Japanese company a wholly owned unit.

“Wal-Mart and Massmart have held initial meetings with all major stakeholders and have constructive engagements with them,” Massmart CEO Grant Pattison said in an e-mailed statement.

The announcement that Massmart may remain listed, shows talks with Wal-Mart are “progressing positively,” he said.

Wal-Mart’s intention to scale back its bid comes two weeks after HSBC (HSBA.L: ) pulled out of talks to buy a majority stake in South Africa’s Nedbank (NEDJ.J: ).

(Additional reporting by Gugulakhe Lourie in Johannesburg; Editing by Michael Shields, Jon Loades-Carter and Richard Chang)

Wal-Mart may scale back bid and keep Massmart listed