/ 29 August 2022

Why US giant Walmart wants all of SA Massmart at R62 a share

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Walmart buying the remaining shares of Massmart would give the struggling retailer financial and operational support to help turn it around, the group said (Photo by Paul Weaver/SOPA Images/LightRocket via Getty Images)

American giant retailer Walmart has proposed buying the remaining shares it does not own in Massmart for R62 a share. 

Walmart bought the initial 51% stake in 2011 at R148 per share. 

If the deal was successful, Massmart would be delisted from the Johannesburg Stock Exchange. 

Keith McLachlan, investment officer at Integral Asset Management, said the turnaround of Massmart might find success if the company was unlisted. 

“[Massmart] would be in the unlisted space which will make it far more flexible. There is less legislation, regulation and compliance. There are fewer reporting requirements, allowing Massmart to be more agile, and that’s important – this is a big ship to turn around,” McLachlan said. 

The value of Massmart has slumped by 80% since Walmart bought into it, as the retailer struggled to remain relevant in a weak economy.

Massmart said the potential offer, if finalised, would provide it with needed access to ongoing financial and operational support from Walmart to sustain the group’s turnaround, which had been impeded by external factors such as Covid-19-related trading restrictions, the unrest in KwaZulu-Natal and a challenging economic environment. 

McLachlan said Massmart had been struggling operationally and even its balance sheet had been looking vulnerable. 

In its half-year results, released on Monday morning, the company reported a large headline loss of more than R903-million, from a loss of R359-million in the same period last year. 

McLachlan explained that Walmart had been supporting Massmart financially for years. Eventually, he argued, Walmart would either have had to sell, “although I am not sure who it would sell it to”, or take Massmart under its wing.

“The current status quo was not working.” 

Walmart had to provide “increasing levels of support” to Massmart, including R4-billion in liquidity during the 2020 lockdown, which Walmart converted 50% into equity, Massmart said in a statement. 

The buyout of Massmart shareholders is to the advantage of South Africa, McLachlan said, as it was the only way to save Massmart. 

“Massmart has a very large domestic store footprint, very large supply chains, warehouses and logistics, employees, a large property portfolio, so if they were to go under, the impact in South Africa would be very large.

“Even if the deal in its current shape or form does not go ahead, this is a reaffirmation for Massmart which is very good for South Africa … We could not be in a country where Massmart failed; that would have far-reaching consequences.”

Massmart said with an expected inflow of foreign direct investment estimated at R6.4-billion, the potential offer, if finalised, represented a vote of confidence in South Africa by the world’s leading retailer.

In a move unrelated to the proposed offer, the group said Walmart chief executive Mitch Slape would step down on 31 December. Slape was sent to turn around the struggling retailer in 2019. 

Chief operating officer Jonathan Molapo would take over as chief executive next year. Molapo was chief executive of Astron Energy before joining Massmart early this year.

Kuseni Dlamini, chairperson of Massmart, said it was a wonderful moment for them to bring in Molapo to lead the company in its next phase of development. 

“Jonathan’s appointment has been part of a well-thought-out succession plan that started with his recruitment to the role of Massmart chief operating officer in January 2022, which provided the opportunity for him to establish strong relationships with Walmart and his Massmart colleagues.” 

Late afternoon trade showed the Massmart share price spiked by 42.31% for the day. 

Anathi Madubela is an Adamela Trust business reporter at the M&G.