The latest news from South Africa suggests Walmart is considering scaling back its offer to acquire a majority stake in Massmart following discussions with its shareholders. Walmart had previously announced a non-binding proposal, which could lead to a cash offer to acquire the entire issued share capital of Massmart, on September 27.
The latest news from South Africa suggests Walmart is considering scaling back its offer to acquire a majority stake in Massmart following discussions with its shareholders. Walmart had previously announced a non-binding proposal, which could lead to a cash offer to acquire the entire issued share capital of Massmart, on September 27.
Last week Massmart issued a press release stating: “After having consulted with major Massmart shareholders and key South African stakeholders regarding the proposed offer, Walmart is investigating potential options for and the merits of retaining Massmart’s listing on the exchange operated by JSE Limited. These investigations could lead to Walmart making a partial offer to acquire in excess of 50% of the entire issued share capital of the company.”
So, why the revision? The most likely explanation is Massmart’s shareholders realised they could benefit from its strong growth without losing control to Walmart, perhaps with an eye to driving up their share price in the long-run.
Other factors could include the fact that Massmart’s largest shareholder is the South African government pension scheme and there could have been some opposition to one of the country’s largest retailers being fully owned by a foreign retailer.
Walmart’s anti-union attitude has being widely discussed in the South African retail and supplier industries, as well as in the public, so it would seem sensible to anyone involved if Massmart continues to be seen as a local company.
The new approach also seems a sensible move for Walmart in that taking a reduced stake would reduce the risk in what is a new market. Acquiring a 50% stake would allow Walmart time to evaluate its business and the South African market as a whole. Retaining Massmart’s listing would give Walmart the option to pull out more easily should things turn out differently. Walmart could then look to increase its stake over time - an approach it has taken with Seiyu in Japan.
While many view Walmart’s revision as backtracking, it seems a sensible move. Those markets where it has tended to be most successful, such as Central America, have tended to be those where it has selected a strong local partner and raised its stake over time. Those markets where it has proven to be a failure, such as Germany and South Korea, have been those where it has jumped in without a strong local partner.
Robert Gregory, global research director, Planet Retail. For more information contact us on:
Tel: +44 (0)20 7728 5600.
Email: info@planetretail.net
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