FT.com / Companies / Retail - Walmart rethinks $4.6bn Massmart deal

FT.com / Companies / Retail - Walmart rethinks $4.6bn Massmart deal

Walmart rethinks $4.6bn Massmart deal
By Simon Mundy in Johannesburg
Published: October 28 2010 15:04 | Last updated: October 29 2010 01:07
Walmart, the world’s biggest retailer by sales, is reconsidering a planned $4.6bn takeover offer offer for Massmart after talks with major shareholders of South Africa’s third-biggest retailer.

The US group last month made a non-binding proposal to acquire the entire listed capital of Massmart, which has operations in 14 African countries, at R148 ($21) per share.

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The offer would be Walmart’s biggest acquisition in an emerging market, and the first move by a major mass market chain into sub-Saharan Africa.

Massmart said in an update on the talks on Thursday that following consultation with its major shareholders, Walmart was “considering potential options for and the merits of retaining Massmart’s listing” on the Johannesburg Stock Exchange.

This could result in Walmart scaling back its ambition to buy all the South African company’s shares and result in a revised offer for a majority stake. But Massmart said any new offer would be at the earlier price.

Syd Vianello, analyst at Nedcor Securities, said some major shareholders had told Walmart they would insist on retaining reduced stakes in Massmart, to “reap the benefits” of anticipated faster growth following the takeover.

Walmart’s Mexican subsidiary provides a precedent for a partial takeover. It holds 60 per cent of the Mexican company, which is publicly listed. The Arkansas-based retailer is keen to pursue further growth in emerging markets, having expanded aggressively in China and Latin America.

Massmart has a particular focus on Nigeria, although 93 per cent of its revenue is generated in South Africa, where it has 290 stores.

Most of Massmart’s listed equity is held by international investors, but big domestic shareholders include the state pension fund. “The government would be delighted if Massmart remains listed,” Mr Vianello said.

A partial takeover could limit Walmart’s financial support for Massmart, as well as anticipated procurement savings.

But Grant Pattison, chief executive of Massmart, said that the takeover process remained “on track”.

“Walmart and Massmart have held initial meetings with all major stakeholders and have had constructive engagements with them.”