- Title: SOUTH AFRICA: Wal-Mart offers $4 billion for South Africa's Massmart
- Date: 29th September 2010
- Summary: PEOPLE IN MAKRO STORE PARKING AREA
- Embargoed: 14th October 2010 13:00
- Location: South Africa
- Country: South Africa
- Topics: Industry
- Reuters ID: LVAEA6AWTNO0D9WS91BW4TCRYH09
- Story Text: Wal-mart's plan to tap into the South African market is a sign of confidence and will boost Africa's biggest economy, said independent economist Mike Schussler on Tuesday (September 28).
Walmart offered more than $4 billion for South African wholesaler Massmart on Monday (September 27) as the world's largest retailer seeks to expand in fast-growing Africa.
Massmart, South Africa's third-largest listed store group by value, owns chains such as Game and Makro and has been among the most aggressive South African outlets in expanding into the rest of sub-Saharan Africa, operating in 14 countries.
Schussler said this is the biggest investment in the retail sector that South Africa has ever had.
"I think further more it shows other people that there is a lot of confidence in the real economy in South Africa because that is the type of investment that they are making. It's not perhaps yet a green field's investment but it's certainly a meaningful investment into the South Africa economy outside of banking and mining where we have seen most foreign activity in the South African economy," Schussler told Reuters.
There had long been speculation that Walmart would try to expand in Africa with Massmart seen as a likely target.
The two companies said Walmart had offered 148 rand per share for Massmart, valuing it at 28.9 billion rand ($4.1 billion) or a premium of nearly 10 percent over the share price at Thursday's (September 23) close of 134.75 rand.
Massmart said it had granted Walmart an exclusivity period, adding there could be no certainty the discussions would lead to a formal offer being made.
"South Africa is becoming the headquarters for many international companies moving into Africa and I think that's an important thing we have got to start putting into our minds is that South Africa is going to see one of its selling points as a spring board into Sub-Saharan Africa and many countries in Sub-Saharan Africa are growing a lot better than South Africa. So South Africa must use this opportunity to the best of it's ability to bring in more companies as a spring board into many areas in Africa," added Schussler.
Walmart will have to deal with the pricing and competition implications of operating in the South African retail industry. Walmart is the world largest retailer and if this deal goes through the African consumers will be the biggest winner with cheaper prices.
Schussler hopes the positive effects that Walmart has had in America will repeat themselves in Southern Africa.
"I think another factor is Wal-Mart has a very big buying power around the world and we already know that in America it has a meaningful impact on inflation in the sense that inflation is being lower in America because of the buying power of Wal-Mart and I think it will have a meaningful impact on inflation outcomes in South Africa as well in many areas because their buying power is very, very strong," he added.
Massmart has nearly 290 stores where the emphasis is on high volumes and low margins. By market capitalisation, it is South Africa's third biggest listed store group after Shoprite Holdings and clothing retailer Truworths.
Shoprite had also been seen as a potential target for Walmart, which has over 8,600 retail units around the world.
Massmart shares are up more than 50 percent in the year to date compared to a rise of more than 36 percent in the South African retailers index and a rise of little over 2 percent in the broader market.
- Copyright Holder: REUTERS
- Copyright Notice: (c) Copyright Thomson Reuters 2011. Open For Restrictions - http://about.reuters.com/fulllegal.asp
- Usage Terms/Restrictions: Footage contains identifiable children: users must ensure that they comply with local laws and regulations governing the publishing of this material.