Wal-Mart to pay $2.3 billion for control of Massmart

By David Dolan

JOHANNESBURG (BestGrowthStock) – Wal-Mart Stores Inc (WMT.N: ) has agreed to pay $2.3 billion for control of Massmart Holdings Ltd (MSMJ.J: ), giving the world’s largest retailer a substantial presence in South Africa and paving the way for further expansion across the continent.

The Wal-Mart tie-up will help discount retailer Massmart speed up expansion in sub-Saharan Africa and increase its food retailing business, the South African company’s chief executive said on Monday.

The deal will also likely pit Wal-Mart, which has long battled with organized labor in the United States, against South Africa’s powerful trade unions, some of which have threatened to strike against the U.S. giant.

Massmart’s chief executive, Grant Pattison, said the company would retain its local listing and South African management after the deal. Analysts have said local expertise would be critical to avoid a bruising union fight.

“What isn’t going to happen is a bunch of Wal-Mart people around here start running the company,” Pattison said on a conference call with reporters.

“South African management will continue to manage the business.”

The two companies said in a joint statement Wal-Mart would pay 148 rand for a 51 percent stake in the South African company, which has a presence in 14 countries in Africa. The value of the deal is 16.5 billion rand ($2.3 billion), Massmart executives said.

Massmart shares were up 0.2 percent at 141.99 rand. Wal-Mart’s bid, including the price, was first announced in September.

Wal-Mart shares fell 23 cents to $53.51.


“Owning a majority stake allows them that degree of control that they need at this stage, while it also appeases (Massmart’s) shareholders,” said Natalie Berg, global research director at Planet Retail, an industry research firm.

“Wal-Mart is not going to be making many changes initially. Even though they are present in 16 countries around the world, ranging from India and Costa Rica, retailing in South Africa is a whole new ball game.”

The move also requires Wal-Mart to commit less capital than buying the company outright, while giving it a chance to learn about the African market.

“We probably like this a little better because (Wal-Mart is) getting control, but technically dipping a toe in the water,” Edward Jones analyst Matt Arnold, said.

Wal-Mart sees international expansion as an important area for growth, as comparable sales at its U.S. discount stores have fallen in each of the last six quarters.

Earlier this month, sources said the company had joined the race to buy Indonesian retailer Matahari’s (MPPA.JK: ) hypermarket business.

Wal-Mart said in September it was looking to buy up to all of the South African retailer, but scaled that back to more than 50 percent last month.

By taking 51 percent of Massmart, Wal-Mart will gain control of the company but keep it listed in Johannesburg, which may be critical to getting a go-ahead from South African authorities.

Some foreign shareholders, mostly emerging market funds, wanted the company to remain listed so they could stick with their investment, Guy Hayward, Massmart’s chief financial officer said. South Africa’s government and the Johannesburg Stock Exchange also expressed an interest in seeing the company retain its listing, CEO Pattison said.

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

Wal-Mart is unlikely to consider raising its stake in the immediate future, said Andy Bond, Wal-Mart’s executive vice president for Europe, the Middle East and Africa.

“This majority purchase is not a stealth way of buying 100 percent. We have every intention of the stock market listing,” Bond told Reuters in an interview in Johannesburg. He also said the company would rely on local management for union negotiations.

The deputy general secretary of the South African Commercial, Catering and Allied Workers Union (SACCAWU) said this month he could not rule out the possibility of a strike if the deal went through

The two companies said Wal-Mart has received “irrevocable” agreements from institutional shareholders holding 35.2 percent of Massmart shares to agree to the deal.

In addition, it has received non-binding letters of support from shareholders holding about 15 percent of Massmart’s shares.

The deal will help Massmart accelerate its expansion in Nigeria, Ghana, Malawi and Uganda, Pattison said, as well as bolster its supply chain in perishable items.

(Additional reporting by Brad Dorfman in Chicago)

(Reporting by David Dolan; Editing by Jane Merriman, Erica Billingham, Dave Zimmerman)

($1 = 7.148 rand)

Wal-Mart to pay $2.3 billion for control of Massmart