Wal-Mart offers $4.25 billion to buy African merchandiser

— Wal-Mart Stores Inc. on Monday said it has made a nonbinding offer of about $4.25 billion to buy Massmart Holdings Limited of South Africa.

If successful, the purchase would be the Bentonville based retailer’s first venture into the African continent.

Massmart operates 290 stores in 13 African nations, most of them in South Africa, selling groceries, general merchandise, home-improvement supplies, electronics and other goods.

The venture, if the offer is successful, will be led by Andy Bond, who in April left his post as president and chief executive officer of Asda, Wal-Mart’s chain of stores in Britain.

Wal-Mart’s offer would be about a 15 percent premium over the value of Massmart’s shares based on trading in the days leading up to the announcement. In Monday trading, Massmart’s stock closed up 10.58 percent on the Johannesburg Stock Exchange after trading as much as 12 percent higher.

“We are continuing to deploy our strategy to accelerate growth and improve returns in our international business, and this region ofthe world fits with our focus on large, high-growth markets,” Doug McMillon, president and chief executive officer of Wal-Mart’s international division, said in a news release.

McMillon said the company would honor “pre-existing union relationships.” Some Massmart workers are represented by the South African Commercial, Catering and Allied Workers Union.

Labor unions have been unsuccessful in organizing workers at Wal-Mart stores in the United States, but they have succeeded in nations with laws that are more fa-vorable to unions, including Britain.

Patricia Edwards, a retail analyst with Trutina Financial in Bellevue, Wash., said South Africa is a logical entry point to the continent because it is more developed than many other nations there.

She also praised the selection of Bond to oversee the venture, given the historic ties between Britain and South Africa.

“Culturally, it’s a better fit to go with somebody out of Asda than it would be pulling somebody out of Bentonville,” she said.

Camille Schuster, a retail consultant who runs Global Collaborations Inc. in California, said Chinese and Indian companies have invested heavily in Africa over the past decade, paving the way for other retail players.

“There’s growth, there’s development, there are people that have disposable income,” she said.

Infrastructure and education still remain a challenge across the continent, she said, and some European retailers have an edge with an established presence.

“But certainly it’s a growing market, and there are advantages to getting in early,” said Schuster, who also is a professor of marketing at California State University at San Marcos.

Massmart posted a cautionary statement on its website after receiving Wal-Mart’s bid. Grant Pattison, its chief executive officer, said in a news release: “Wal-Mart’s interest represents a vote of confidence in South Africa, as well as in Massmart and all its employees.”

Massmart’s formats include:

Game, a discount operation that sells general merchandise and non-perishable groceries.

DionWired, which sells middle- to upper-end electronics and appliances.

Masswarehouse, a big-box warehouse club format that sells food, liquor and general merchandise.

Makro, which sells general merchandise mostly to retail customers, and food and liquor mostly to wholesale customers.

Massbuild, a home-improvement and builders’ trade business that operates under three banners.

Masscash, with four banners: CBW, which sells food, liquor, groceries and cosmetics in bulk through different channels, including government feeding programs; Jumbo, which sells mostly cosmetics and hair-care products to individuals and dealers operating under various names; CellShack, which sells cellular products in retail and wholesale channels; and Shield, an association that buys bulk products for more than 470 members.

Wal-Mart also has operations in Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, Guatemala, India,Japan, Mexico and Nicaragua.

Wal-Mart’s stock closed Monday at $53.48 a share, down 60 cents or 1.11 percent on the New York Stock Exchange. It has traded between $47.77 and $56.27 in the past year.

Front Section, Pages 1 on 09/28/2010

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