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Walmart Wants a Bigger Foothold in Major African Market

Walmart Inc. is putting its resources behind South Africa’s Massmart as it gears up to go head to head with Amazon’s marketplace launching in the growing economy next year.

The big-box chain on Monday offered $377 million to take Massmart private by acquiring the rest of its shares after it purchased a 51 percent stake for $2.3 billion back in 2010.

South Africa has become the the continent’s second-largest economy, with a considerable upper-middle-class cohort making up much of the industrialized country’s 60 million population.

Africa overall is attracting investment. Carrefour’s franchisee Majid Al Futtaim, the United Arab Emirates mall developer, last year took over six stores in the East African nation of Uganda. And in June, the American Apparel and Footwear Association urged the office of the U.S. Trade Representative to renew the African Growth and Opportunity Act, branding nations in the continent as the “logical” choice for brands looking to diversify away from China.

Walmart has long chased what it sees as the next big growth hotspot. In 1999, it acquired Britain’s Asda Group Ltd. for 6.72 billion pounds ($10.8 billion), in a deal seen as a disappointment despite Asda’s store base doubling and annual sales nearly tripling. Walmart finally sold its majority stake in Asda for 7.3 billion pounds ($8.8 billion) to Issa Brothers and U.K. private equity firm TDR Capital, but retains a minority stake.

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Walmart has always had Amazon on the fringes in South Africa. But Amazon has been increasingly showing signs of nipping at Walmart’s heels after it expanded its offices and staff in Cape Town for IT and AWS cloud computing services. More recently, Amazon’s expansion plans—believed to be at least a decade in the marking—include the development of its headquarters building in Cape Town, although a court has put that on temporary hold due to local resistance, and the launch of a marketplace early next year.

Massmart posted a 4.3 percent comparable sales growth from continuing operations for the first half, although total sales rose just 1.9 percent to 38.1 billion South African rand ($2.26 billion). And margin and inflationary pressures resulted in a decline in profits from continuing operations to 377.3 million ($22.4 million) South African rand from 792.1 million South African rand ($53.6 million). Sales from operating platforms rose by 50 percent from year-ago levels, and gross merchandise value—the total volume of merchandise sales on the e-commerce sites—rose by 108 percent for the period, Massmart said.

The South African retailer said its board and that of Walmart already have reached an agreement in principle. Presuming the deal is finalized, it said the benefit for Massmart would be “needed access to ongoing financial and operational support from Walmart to sustain the Group’s turnaround.” The retailer said its liquidity has been hurt by Covid-19 restrictions, civil unrest in KwaZulu-Natal and a challenging economic backdrop. For example, the Massmart-operated Game retailer had been struggling, in part due to Covid, but seems to be turning around slumping sales now that e-commerce is driving growth.

Massmart said the offer “represents a positive vote of confidence in South Africa by the world’s leading retailer.” With a 12-year operational history in South Africa, Massmart said Walmart’s deal ” could stimulate investor interest and confidence in the face of depressed local and international investor sentiment, thereby assisting in the economic recovery of the country.”

Massmart’s chairman Kuseni Dlamini said an independent board has reviewed the offer and determined that it is “fair and reasonable.” The per-share deal at 62 South African rand ($3.68) represents a 53 percent premium to Friday’s closing price.

Massmart also said on Monday that CEO Mitchell Slape will step down on Dec. 31, 2022 and will be succeeded by Jonathan Molapo, effective Jan. 1, 2023. Molapo joined the company in January as chief operating officer from Astron Energy, where he was CEO.

“Jonathan’s appointment has been part of a well-thought-out succession plan,” Dlamini said, adding that the year-to-date has “provided the opportunity for him to establish strong relationships with Walmart and his Massmart colleagues.” He noted that Slape’s tenure since September 2019 has included the “successful delivery of more than 30 turnaround projects.”

“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,” Judith McKenna, president and CEO of Walmart International, said. “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.”