Walmart takes Massmart private to revive South African business

 ·29 Aug 2022

Walmart Inc plans to take Massmart Holdings private and will promote the unit’s chief operating officer to head of the company as it prepares to renew its focus on South Africa.

The global retail giant plans to buy all of the shares it doesn’t already own of Massmart for R62 ($3.65) apiece, a 53% premium to the last closing price, and delist the company from Johannesburg’s main bourse. Jonathan Molapo, who joined Massmart in January as COO will take over as chief executive officer a year after he joined the company.

He replaces Walmart veteran Mitchell Slape.

Walmart is preparing for increased competition amid press reports that Inc is planning to expand into Africa’s most-industrialized nation. Taking Massmart private may help Walmart cut costs and invest in the company that owns brands including Makro and Builders without the scrutiny that comes with being a public company.

“There is no question that Amazon is going to intensify competition in the market,” Slape said at a briefing on Monday. “We’ve been working hard to build our e-commerce business over the last few years. We think we’ll have a very competitive, very interesting offer for our consumers and you’ll see more of that in the coming months.”

The stock jumped as much as 45% on the R6.4 billion offer. It was trading 42% higher as of 11:20 a.m. in Johannesburg. That pares its loss for the year to 5.3%.

Walmart has been exiting low-growth markets and concentrating on partnerships or stakes in local participants. The company has sold Asda in the UK, Seiyu in Japan and its Argentina operations.

“Basically, all markets outside of the US, they haven’t made an imprint,” Evan Walker, money manager at 36ONE Asset Management Ltd in Johannesburg, said referring to Walmart. “It’s going to be interesting to see if they come out now very aggressively against other retailers from a buyer perspective.”

Slape, who has worked for Walmart for 27 years, was sent to arrest a slump in profit at the Johannesburg-based company. Under Slape’s leadership, the company has cut jobs, shut its Dion Wired chain, disposed of underperforming Masscash stores and stopped selling fresh food in household-goods chain Game.

Still, Game is struggling, even after the broad cost cuts. Slape has also faced a string of difficulties ranging from pandemic-induced supply chain problems to a week of deadly South African riots a year ago.

Widening Loss

Massmart on Monday also reported a first-half net loss of R1.1 billion, widening from a loss of R1.09 billion a year earlier. The company also has R14.9 billion of debt as of Dec. 31, according to data compiled by Bloomberg.

COO Molapo has held various leadership positions in South Africa and internationally and was most recently the CEO of Astron Energy Ltd. His most significant retail experience has been developing retail forecourts at gas stations.

Molapo’s appointment as COO was “from the very outset, part of a carefully thought out succession planning process,” Massmart Chairman Kuseni Dlamini said on a briefing with reporters. This followed a local and international search, he said.

Walmart bought a majority stake in Massmart in 2011 for R16.5 billion. The purchase came under scrutiny from competition authorities and Walmart had to make various development commitments in order to get the deal passed. Still, as majority shareholders, Walmart’s new offer won’t be subject to regulatory approvals, Slape said at the same briefing.

Walmart “are excited about the future of Africa and the potential that it represents,” Slape said. “They take a long-term view, they’re a long-term holder.”

Read: Good news for petrol and food prices in South Africa

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