Wal-Mart set to offer $4bn for Massmart

City A.M. Reporter
WAL-MART is in talks to buy South Africa’s Massmart, in a $4bn (£2.52bn) deal that would give the US retailer a big presence in fast-growing Africa and boost its emerging markets strategy.

Wal-Mart has made a non-binding proposal of 148 rand (£13) per Massmart share, valuing it at around 30 billion rand (£2.7bn), a premium of nearly 10 per cent over its last closing price of 134.75 rand.

Massmart said it has granted the US firm an exclusivity period and there is no certainty of a formal offer. But Massmart’s share price jumped 11 per cent to 150 rand, above the value of the proposed offer.

Buying Massmart, South Africa’s third-largest listed retailer by value, would give Wal-Mart a considerable network in Africa’s biggest economy and a foothold in 13 other countries in sub-Saharan Africa.

The world’s largest retailer has recently been hit by weakness in the United States where low-income shoppers are particularly vulnerable to unemployment and higher gasoline prices. It has responded by focusing on cost cuts and international growth.

“Massmart is a very good fit with their business,” said Bryan Roberts, global research director at London industry research firm Planet Retail.

Some analysts have said the acquisition might not be the best use of Wal-Mart’s cash.

“Wal-Mart should be allocating its capital first and foremost to developing US urban stores and then returning cash to shareholders,” said Wall Street Strategies analyst Brian Sozzi.

Wal-Mart would become the first major international retailer to enter South Africa, but others could soon follow by targeting one of Massmart’s local competitors, Roberts said.