Bentonville, Ark. - Wal-Mart Stores announced Monday that it is buying a controlling stake in South Africa's Massmart in an approximately $2 billion deal. The investment gives the discounter a substantial presence in South Africa and paves the way for further expansion across the continent. Wal-Mart International president and CEO Doug McMillon made clear his company is pursuing a regional strategy.
"The more we learn about South Africa and the surrounding countries the more we are convinced that this is an important region with attractive growth characteristics," he said in a statement.
The two retailers said that Wal-Mart would purchase 51% of Massmart for 148 rand ($20.71) per share. Massmart Holdings Ltd. currently has approximately 203.5 million shares outstanding, according to Thomson Reuters.
Massmart will continue to be listed on the Johannesburg exchange, addressing the concerns of stockholders. The company, based in Johannesburg, runs nearly 290 stores in 14 countries in Africa, with most in South Africa. It also manages eight wholesale and retail chains under various brand names.
“Owning a majority stake allows them that degree of control that they need at this stage, while it also appeases (Massmart's) shareholders," said Natalie Berg, global research director at Planet Retail, an industry research firm, in a Reuters report. "Wal-Mart is not going to be making many changes initially. Even though they are present in 16 countries around the world, ranging from India and Costa Rica, retailing in South Africa is a whole new ball game."
Massmart is Africa's third-largest distributor of consumer goods, the leading retailer of general merchandise, liquor and home improvement equipment and supplies and the leading wholesaler of basic foods.
The deal will pit Wal-Mart against South Africa's powerful trade unions, which are known for their propensity to go on strikes. Analysts have said local expertise would be critical to avoid a bruising union fight.
By taking a smaller slice of Massmart, Wal-Mart is alleviating some of the concerns of shareholders, because it allows Massmart to keep its JSE listing and investors can keep their stakes.