2 June 2011
US retailer Walmart says it is looking forward to boosting South African exports, creating new jobs in the country, and using its controlling stake in local retailer Massmart to expand in the southern African region, following the competition authorities’ approval of the merger.
Walmart CEO Doug McMillon said during a conference call on Tuesday that the company expected to complete the R16.5-billion transaction to buy a 51 percent stake in Massmart within weeks.
“We will now move to close the transaction as soon as possible … we do look forward to closing … in a matter of a few weeks,” McMillon said following the announcement by South Africa’s Competition Tribunal that the deal could go ahead with conditions proposed by Walmart and Massmart.
Supplier fund, no retrenchments
The conditions include setting up a R100-million supplier development fund, no merger-related retrenchments for two years, and the continued recognition of the SA Commercial Catering and Allied Workers’ Union for three years post the merger.
“We look forward to creating new jobs in South Africa, support for the development of South African exports, and providing previously under-served customers and communities with better prices and increased access to the products they want and need,” McMillon said.
The merged entity would open new stores, create thousands of new union jobs, and anticipated growing its food business by over 50 percent in five years, he added.
Walmart said it had committed to sourcing the vast majority of fresh food products from South Africa, and was planning a “substantial” programme to train and develop thousands of local farmers, with a specific focus on black economic empowerment.
Deal ‘sends a very positive signal’
The deal was seen as a test case for South Africa’s competition authorities, particularly as the merger raised no competition concerns, but did concern the public interest, the tribunal said in its finding.
Massmart CEO Grant Pattison said the signal sent by the tribunal embraced a “mainstream interpretation” of competition law, and had “to some extent rejected the radical interpretation”.
“I think it sends a very positive signal to the entire global investment community,” he told the conference call.
Walmart, which operates around the world, including Canada, Brazil, China, Chile, Japan and Mexico, wanted a share of Massmart to get a stake in emerging African markets.
McMillon said Walmart saw the deal as involving a region, not particular countries.
“Clearly South Africa alone is an attractive market, but we are clearly interested in sub-Saharan Africa … we don’t start out with a predisposition to growing in one country over another … we think of this as a region.”
Pattison added they were “trying to figure out a way to get into” new markets such as the Democratic Republic of Congo, Senegal and Angola. They also saw promise in Nigeria.
Business Unity South Africa (Busa) said the tribunal’s decision was “pragmatic” and would increase competition in the retail sector.
‘Raise levels of SA competiton’
“The acquisition will increase competition in the retail sector and is thus in line with the provisions of the new growth path seeking to raise levels of competition in the SA economy,” Busa said in a statement.
The South African SMME Forum, which took part in the tribunal hearings, said it “notes and welcomes the ruling”.
“To the extent that specific conditions pertaining to the development of local enterprises have been made, the forum now wishes to pledge its support in this regard,” the forum’s president, Tebogo Khaas, said in a statement.
Trade union Uasa also welcomed the deal, saying in a statement: “Uasa believes this is a positive step towards South Africa becoming a part of the mainstream international economy, and that another decision would have reflected negatively on a global level.”
The government and unions were concerned that the deal would lead to job losses and hurt local procurement. However, the tribunal said conditions proposed by Walmart and Massmart to counteract these were sufficient, and warned that they would be enforceable.
Reasons for the tribunal’s decision will be released on or before 29 June.
The Massmart group includes Game, Dion Wired, Makro, Builders Warehouse and Masscash.