Wal-Mart is in talks to buy South Africa’s Massmart, a US$4 billion deal that would give the US retailer a big presence in fast-growing Africa and bolster its emerging markets strategy.
The world’s largest retailer has been hit by weakness in the US, where low-income shoppers are particularly vulnerable to unemployment and higher gasoline prices. It has responded by focusing on cost cuts and international growth.
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.
“Massmart is a very good fit with their business,” said Bryan Roberts, global research director at industry research firm Planet Retail in London.
Other international retailers could eventually bid for one of Massmart’s local competitors to tap the potential of sub-Saharan Africa, he said.
“There’s no shortage of good businesses that could be acquisition targets — Shoprite, Woolworths and the like,” he said.
Massmart and Wal-Mart said the US company had made a non-binding proposal of 148 rand (US$21.10) per Massmart share, valuing it at around 30 billion rand or a premium of nearly 10 percent over last Thursday’s close of 134.75 rand.
Massmart said it has granted the US firm an exclusivity period and said there was no certainty of a formal offer.
Wal-Mart’s bid values Massmart at 26.3 times its 12-month adjusted earnings per share, according to Thomson Reuters data. That compares to 21.5 times for Shoprite and 15.5 times for Woolworths.
Massmart sells general merchandise, electronics and food. It runs nearly 288 stores and nine different retail and wholesale chains. It has also been one of the most aggressive of South Africa’s retailers in expanding into the continent.
“It’s a big vote of confidence for the South African retail economy and for South Africa,” said Syd Vianello, an analyst at Nedcor Securities.
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