Wal-Mart Stores Inc. said Monday that it has made a revised offer to buy 51 percent of the shares of South Africa retailer Massmart Holdings Ltd. for 16.5 billion rand, or $2.3 billion.
The move, a revision of an offer in late September to buy all shares of the company for $4.25 billion, would allow shares of Massmart to continue to be traded on the Johannesburg Stock Exchange.
“This will remain very much an African and South African company. You will not see a great deal of things imposed on the company,” Andy Bond, Wal-Mart executive vice president for Europe, the Middle East and Africa, said in a presentation to investors and reporters. The event was webcast on the Internet.
The boards of directors of both companies issued a joint statement recommending that shareholders approve Wal-Mart’s offer.
Wal-Mart’s offer per share was unchanged at 148 rand or $20.72, and represented a 19.2percent premium above the price of Massmart’s shares at the time it was made.
Wal-Mart has a similar arrangement in Mexico, where it owns 68 percent of Wal-Mart de Mexico. That company’s stock trades on the Mexican Stock Exchange.
Bond referred to that acquisition as a “wonderful experience” which has generated positive feedback from shareholders. He said the company has no intent to gain 100 percent ownership of Wal-Mart de Mexico shares.
In other nations, Wal-Mart successfully acquired all shares of a publicly traded companies. In Japan, that occurred over a period of almost six years beginning in May 2002. Seiyu, now a wholly owned subsidiary, was delisted from the Tokyo Stock Exchange in April 2008.
And Bond came from Britain’s Asda operation, which Wal-Mart bought in its entirety.
In Africa, most of the large retailers are based in South Africa, the continent’s most developed nation. Those include Massmart competitors Pick n Pay Stores Holdings and Shoprite Holdings, both of which have higher sales than Massmart.
Patricia Edwards, retail analyst with Trutina Financial in Bellevue, Wash., said it makes sense for Wal-Mart to partner with a local operation to enter a new market.
“I’m surprised they changed their strategy partway through, but in my mind, it’s the better strategy,” she said. “I just think it makes more sense to have a local partner.”
Wal-Mart has had success in areas that have an emerging middle class, Edwards said.
“They have an opportunity to get in there early and establish a foothold. It’s the last frontier, almost literally,”she said.
Massmart has 288 stores in 14 nations, most of them in South Africa.
Wal-Mart faces opposition from the Commercial, Catering and Allied Workers Union in South Africa, which represents about 70 percent of Massmart’s 27,000 employees.
“We recognize their right to speak out publicly against it,” Grant Pattison, Massmart’s chief executive officer, said in the webcast. Now that the company has a firm offer from Wal-Mart, he said, the company’s discussions with the union will become more detailed.
In the joint statement, the companies said that Massmart’s board appointed financial services firm Morgan Stanley to evaluate Wal-Mart’s offer, and that the firm advised that the offer was fair.
The companies also said Wal-Mart has received commitments from institutional shareholders representing 35.2 percent of shares to vote in favor of the acquisition or to recommend that their clients vote for it.
Wal-Mart’s stock closed Monday at $53.85 a share, up 11 cents, or 0.2 percent, on the New York Stock Exchange. It has traded between $47.77 and $56.27 in the past year.
Massmart shares closed up 0.21 percent on the Johannesburg Stock Exchange.
Business, Pages 23 on 11/30/2010