Massmart appoints new chief executive amid Walmart acquisition

US retailer Walmart Stores is set to acquire the outstanding shares that it does not already own in South African retailer, Massmart.

The offer excludes treasury shares, and has been agreed to in principle by the boards of both companies.

The potential offer proposes Walmart acquire all of the outstanding shares of Massmart for a price of R62 per share by way of a scheme of arrangement or a general offer if the scheme of arrangement does not become operational.

This represents a 53% premium to the last closing price, with Massmart delisting from the JSE, where it has a market value of about R8.9 billion, noted Bloomberg.

Walmart acquired 51% stake in Massmart Holdings in 2011, for R17 billion ($2.4 billion). Since the end of 2019, Massmart’s share price has dropped 21% and it has had to close a number of stores, reported Bloomberg. The latest deal is valued at around R1.34 billion, according to Reuters.

“The Massmart Independent Board, after taking into account the preliminary report of the independent expert, is unanimous in its preliminary opinion, that the terms and conditions of the potential offer are fair and reasonable,” said Massmart chairman Kuseni Dlamini.

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

“These factors have exacerbated liquidity risk at Massmart, which Walmart’s financial support has helped to mitigate. This support includes a R4 billion loan provided by Walmart to Massmart at the height of the Covid-19 lockdown in April 2020, 50% of which was subsequently converted, in December 2021, into equity through a perpetual fixed rate unsecured note.”

With an expected inflow of FDI estimated at 6.4 billion, Massmart said that the offer “represents a positive vote of confidence in South Africa by the world’s leading retailer”.

Massmart also published its interim results on Monday (29 August), noting that total sales from continuing operations for the 26 weeks to 26 June 2022 of R38.1 billion represented an increase of 1.9%, with comparable store sales increasing by 4.3%.

The group has been up against it financially in recent years, leading to the closure of Dion Wired, while Game has also struggled to remain profitable,  and Makro also not realising its full potential.

Margin and inflationary pressure resulted in a trading profit from continuing operations declining from R792.1 million in the prior year period to R377.3 million in this reporting period, Massmart said.

Sales from our online platforms grew by 50% compared to the prior year period, and Gross Merchandise Value (GMV) increased by 108.0% over the same period, the group said.

Massmart incurred retrenchment and business transformation costs of R205.9 million, compared to R73.4 million in the prior year period, while a net loss of R847 million was reported for the period (2021: R774.1 million loss), with a headline loss of R903.5 million (2021: R358.5 million loss).

CEO succession

Massmart said that in a move unrelated to the potential offer, it has also announced CEO Mitchell Slape’s successor. Slape will step down from his role as Massmart CEO on 31 December 2022, after taking up the role in 2019. Slape will hand over to Jonathan Molapo, who becomes CEO, effective 1 January 2023.

Molapo has strong executive and international leadership experience, having joined Massmart from Astron Energy, where he was CEO from June 2018 to December 2021. Prior to this, he was employed by Puma Energy and Total SA Group, where he held respective roles as COO and executive VP for Central and East Africa.

Molapo has a BA in Economics from Laurentian University, Canada and has completed the International Executive Programme at the Insead Business School in France.

“Having had the opportunity to get to know Jonathan since he joined the company, we look forward to working alongside him as CEO and building on our commitment to South African customers, associates and partners. We continue to see opportunity in Massmart and the impact the business can have, providing people across the region with greater access to goods and services they want,” said Judith McKenna, president and CEO of Walmart International.

Slape will remain in the role until 31 December 2022 and will have the ultimate responsibility for delivering the FY2022 financial plan.

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