Wal-Mart Turns Attention to Africa
There may have been some who expected Wal-Mart to try to
buy its way into the South African market through an acquisition, but most
seem to have been taken off guard by the company’s non-binding offer to acquire
Massmart for around $4.8 billion in cash.
Massmart, which The New York Times described
as a cross between Home Depot and Wal-Mart, is the third largest retailing
company in South Africa. It is the largest food retailer in the region with
stores in 14 African nations below the Sahara.
Doug McMillon, president and
chief executive of Walmart International, said in a statement, “We have
the opportunity to leverage our experience from around the world to more effectively
serve customers, create opportunities for our associates and add shareholder
value. …This region of the world fits with our focus on large, high growth
markets. This potential combination with a market leader will enable us to
add value to an already successful business through investments in people and
Brian Sozzi, an analyst with Wall Street Securities, described
the bid as coming out of “left field,” in a research note.
“Though Massmart would benefit from the Wal-Mart know-how and its best
of class supply chain, the margin structure (18.1 percent) is well below Wal-Mart
at around a 24 percent gross margin and a six percent operating margin,” wrote
Mr. Sozzi. “Keep in mind the South African retail marketplace appears
highly competitive, maybe becoming more so if Wal-Mart decides to undercut
competitors further on price as it does in the U.S.”
Mr. Sozzi expressed
concern that the acquisition attempt could lead Wal-Mart to to take its eye
off of challenges in the U.S. market as well as in the U.K., where its Asda
division is rebounding, and in Japan, where it “has finally
gained traction” with Seiyu.
Should the MassMart deal go through, Wal-Mart would find itself managing an
organized workforce. Mr. McMillon said, “We respect and honor pre-existing
union relationships and are committed to abiding by South African labor laws.
We also look forward to serving communities and working with the leaders to
support the continued development and momentum in the region.”
South Africa’s largest labor union has come out against the deal, according
to a Wall Street Journal report. The Western Cape provincial arm of the Congress
of South African Trade Unions (Cosatu) said in a statement, “We will oppose
the setting up of any Wal-Mart stores in the Western Cape. These companies
are notoriously antiunion and anti-workers’ rights.”
Discussion Question: Would an acquisition of Massmart be a good or bad move
for Wal-Mart Stores at this time?
- Walmart announces intent to acquire South Africa-based Massmart – Wal-Mart
- Walmart’s $4bn bet on Africa’s consumers – Financial Times
- Wal-Mart Bids for Massmart to Expand Into Africa – The New York Times
- Wal-Mart Faces Union Opposition in South Africa – The Wall Street Journal