/ 9 May 2011

CEO’s payout just another brick in the Walmart deal

Massmart's CEO admits he would earn a huge payout from a merger with Walmart -- but denies staff were retrenched to make the company more attractive.

The Competition Tribunal into the Massmart/Walmart merger resumed in Pretoria on Monday, with Massmart chief executive Grant Pattison taking the stand and facing severe cross examinations from the unions as well as government departments opposing the merger.

Advocate Paul Kennedy, representing the unions, questioned Pattison over retrenchments that took place in 2009 in Nelspruit. He argued that Massmart had retrenched staff to make the company more attractive as an acquisition to Walmart.

Pattison denied this.

Advocate Rafik Bhana, representing the Department of Trade and Industry and the Department of Agriculture, Forestry and Fisheries, argued that Pattison stood to gain a huge sum of money in his personal capacity if the merger went ahead.

Pattison conceded that he owned over two-million shares and options in Massmart. Given that the offer from Walmart stood at R148 a share, this would put the value of his shares at about R300-million. He also acknowledged that he would be a “prime candidate” to benefit from additional share allocations should the merger take place.

The hearing follows the Competition Commission’s recommendation to the tribunal, in February, that the R16,5-billion merger be approved without conditions.

The hearing will continue until May 13, with May 16 reserved for legal argument.

The unions’ objections to the merger have been buttressed by a number of affidavits filed earlier this year by lawyers, academics and economic advisors from around the world, presenting anecdotal evidence of examples where the entrance of Walmart into a country had allegedly had a negative effect on small businesses and the labour force. Walmart and Massmart, on the other hand, argue that they will bring real competition, efficiency and job creation to South Africa.

The principal union objecting to the merger is the South African Commercial, Catering and Allied Workers Union (Saccawu). The affidavit of its deputy secretary general, Noel Mbongwe, has said the union is not against foreign direct investment in South Africa, but rather in favour of “responsible” foreign direct investment.

Mbongwe has pointed out that the governments of Norway, Sweden and Holland had all disinvested from Walmart because of the risk that they might have been complicit in human rights violations had they not. “International organisations such as Human Rights Watch and numerous academics and activists have reported on Walmart’s poor record as a global corporate citizen,” said Mbongwe.

He has argued that Walmart’s “poor” global reputation and “sustained contravention of the law, as repeatedly found by regulators and enforcement agencies in other jurisdictions” should exclude it from doing business in South Africa.

One of the union’s international witnesses is Claudio Alvarez, a Chilean national who works as an attorney for labour unions in that country.

In December 2008 Walmart entered Chile through the purchase of a controlling shareholding in local retailer D&S. In witness statements to the court, Alvarez argues that Walmart’s entrance has had a severe impact on small suppliers in Chile and says Walmart only buys products on consignment from small suppliers, which means they bear all the financial risk.

Alvarez says Walmart is effectively forcing suppliers to “rent physical space for their products” in Walmart stores. Alvarez also argues that Walmart’s decision to prohibit the sale of products from Iraq, Iran, Cuba and Venezuela has been “devastating” for some Chilean suppliers.

Alvarez says the impact of Walmart’s entry on small to medium-sized enterprises has been huge. “Since Walmart forced them to lower their prices, these small suppliers have had to restructure their costs, by reducing personnel and lowering wages and working conditions for workers,” he says. He also accuses Walmart of having an “anti-union strategy”.

“I believe that Walmart is formulating a strategy to neutralise unions in Chile to the detriment of thousands of workers.”

The second of the union’s international witnesses is Sofia Scasserra, the economic advisor to the Argentine Federation of Commerce and Service Workers. Scasserra also argues against Walmart buying stock on consignment.

“This means that in the event that the product sells, the supplier gets paid,” says Scasserra, in her witness affidavit. “But if the product does not sell, then it was deemed never to be Walmart’s to begin with … The fact that the producer is responsible for the unsold products has generated a dependence and a great loss, especially in the food sector, as the products are perishable.”

“In short the local sourcing that Walmart does carry out in Argentina is not of a nature which supports a local sustainable supply chain,” says Scasserra.

Nelson Lichtenstein, an American academic and chairperson of the MacArthur Foundation, who also filed an affidavit for the unions, stating that Walmart’s business model has led to substantial job losses in the United States.

Lichtenstein argues that a report from the Economic Policy Institute found that Walmart was responsible for 200 000 job losses in the US between 2001 and 2006, which equates to 11,2% of all job losses in the country, because of cheap foreign imports during that time. “Because Walmart sets the pattern that other mass retailers follow, this Walmart effect is undoubtedly responsible for at least 50% of all US job losses due to cheap foreign imports during the years 2001-2006,” says Lichtenstein.

Read more: Walmart/Massmart’s arguments