Wal-Mart, the world's largest retailer, is planning to scale down its $4.2 billion total takeover of South African retailer Massmart and instead opt for a smaller stake following consultations with major Massmart shareholders and the South African government.
Massmart yesterday said in an update that Wal-Mart is investigating potential options for and the merits of retaining Massmart's listing on the Johannesburg Stock Exchange after having consulted with major Massmart shareholders and key South African stakeholders regarding its proposed takeover offer.
Wal-Mart, the Arkansas-based world's largest retailer, last month made a $4.2 billion (29.8 billion rand) takeover offer for South Africa's s biggest food and general goods wholesaler Massmart. (See: Wal-Mart launches $4.2 billion takeover bid for South Africa's Massmart)
Wal- Mart is now planning to make a partial offer to acquire over 50 per cent rather than a full buyout at its earlier offer price of 148 rand ($21) per share, said Massmart in a statement.
A revised bid from the retail giant would come after major shareholders of Massmart, a majority of whom are non-South Africans, indicated that they would prefer to keep a stake in the company and take part in Massmart's future growth in Africa, where the population is expected to reach 2 billion by 2025.
Armed with a $5-billion war chest for overseas acquisition, Wal-Mart International president Doug McMillon had recently sold the company's expansion plan to a group of investors in the US. According to him, spending in sub-Saharan Africa is expected to grow from $860 billion in 2008 to over $1.4 trillion in 2020.
Analysts have said that the South African government also may have played a role in Wal-Mart abandoning its total takeover of Massmart since the US retailer comes with a reputation of killing local competition.
The South African government pension fund and the Public Investment Corporation are Massmart's biggest shareholders holding a little over 9 per cent in the retailer.
Historically, South Africa has always opposed any overseas firms from buying out large strategic companies unless the target company is in financial trouble.
It blocks large acquisitions under the Black Economic Empowerment (BEE) law that was introduced in June 2008 to give South Africans economic opportunities previously not available to them.
South Africa largest trade union, The Congress of South African Trade Unions (Cosatu) had come out fiercely against the proposed takeover of Massmart on the grounds that the US retailer has one of the worst records on labour rights and continues to be hauled to courts by its employees. (See: South African union opposes Wal-Mart's $4.2 billion bid for Massmart)
In a statement put out on its website, Cosatu had said, "We call on urgent national action from government to investigate this hostile move by Wal-Mart. Companies whose practice it is to abuse workers rights are not welcome in South Africa."
But South Africa presents a compelling growth opportunity for Wal-Mart and offers a platform for growth and expansion in other African countries. South Africa possesses attractive market dynamics, favorable demographic trends and a growing economy.
Johannesburg-based Massmart is one of the largest distributors of consumer goods on the African continent and is the leading African retailer of general merchandise, home improvement equipment and supplies.
Massmart focuses on high-volume, low-margin, low-cost distribution of mainly branded consumer goods for cash, which makes it the market-leading retailer of basic foods in the region.
Massmart has four areas of operations - mass warehouse discounting to retailers and wholesalers, general merchandise discounting, food wholesaling and home improvement retailing.
The company runs 290 stores in 13 countries in Africa, with the vast majority of its stores in South Africa, and manages eight wholesale and retail chains operating under a variety of different brand names.