Walmart puts in R6.4-billion offer for beleaguered Massmart
American retail giant, Walmart, which is already the majority 53% shareholder in Massmart, has proposed a R6.4-billion cash, buy-out offer for the shares it does not already hold in the SA-based retailer, a likely prequel to a major restructuring of the stressed group.
Massmart chairman, Kuseni Dlamini says that following a preliminary independent report, the board is of the unanimous opinion that this is a fair and reasonable offer. “If this deal is finalised, it will enable the financial support to accelerate Massmart’s turnaround given increased liquidity risk caused by external factors such as Covid-19, civil unrest and challenging economic conditions,” he says.
The board expects to have a full report out to shareholders in a circular in September and Dlamini says this is an opportunity for minority shareholders to realise immediate value in an environment where there are no near-term catalysts for a Massmart re-rating.
The generous offer, a 53% premium to the closing price and a 62% premium to 90-day volume-weighted average share price on Friday, 26 August, follows a R4-billion loan that Walmart granted to help Massmart survive at the height of the Covid-19 lockdowns, when the retailer was battling to stay afloat. Half of the R4-billion loan was subsequently converted, in December 2021, into equity through a perpetual fixed rate unsecured note.
Walmart made its initial investment with the purchase of a 51% stake in 2011, at the price of R148 a share, more than double what it is offering now. Dlamini says the transaction is not subject to Competition Commission approval, given that Walmart is already the majority shareholder, adding that it is a serious vote of confidence in the South African economy that will hopefully spur further foreign investment.
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However, despite the significant investment from Walmart, the company has continued to flounder, posting a 152% increased headline loss of R903.5-million for the six months to the end of June this year. The group’s total loss inched up 4% to a loss of R1.029-billion from a loss of R1.072-billion last year. Margin and inflationary pressure resulted in trading profit from continuing operations declining from R792.1-million last year to R377.3-million during the period under review. Management noted, however, that in the seven-week period post the end of June, the group saw a 15.5% increase in sales from continuing operations.
Massmart, which owns Game stores, Makro and Jumbo has not seen a significant recovery in recent years, despite shutting the doors on 23 DionWired stores in 2020.
Referring to the potential entry of Amazon in the local market, Massmart’s chief executive, Mitch Slape says there will be competitors that come and go in the market, but Massmart remains focused on driving its own turnaround. “There is no question that Amazon will intensify competition in the market.
“To that end, we have been working hard to build our business over the last few years and we think we’ll have a very competitive, interesting offer for our consumers,” Slape says.
Earlier this year, Walmart together with India-based Flipkart and Payoneer offered Indian manufacturers the opportunity to trade on Walmart Marketplace, where they could reach more than 120 million US consumers. Could the “competitive, interesting offer” include a South African-based Massmart Marketplace? If so, this would reduce overheads as the number of stores would decrease in favour of a low-overhead e-commerce model that could be advantageously positioned to offer serious competition to the likes of Amazon and Takealot.
In a move unrelated to the potential offer, Massmart has also announced that Mitch Slape will step down as CEO at the end of the year, handing over the reins to Jonathan Molapo. BM/DM