Wal-Mart Stores Inc. is considering taking a smaller stake in South African retailer Massmart Holdings Ltd. to keep its listing on the Johannesburg Stock Exchange
Massmart said Thursday that the world's biggest retailer informed the company that it may now make a partial offer to buy more than 50 percent of the company for 148 rands ($21.06) per share.
In September Wal-Mart offered to buy all of Massmart for about $4.25 billion. The move was viewed as a way for Wal-Mart to jump-start growth beyond its sluggish U.S. business.
Massmart currently has 201.5 million shares outstanding, according to Thomson Reuters. The company, based in Johannesburg, runs about 290 stores in 13 countries in Africa, with most in South Africa. It also manages eight wholesale and retail chains under various brand names.
Massmart said Wal-Mart indicated that it spoke with major Massmart shareholders and key South African stakeholders about its proposed bid.
"We're exploring a variety of options relating to ownership structure, as Walmart has several different models of successful international ownership designed to maximize shareholder value, including 100 percent ownership of operations in markets such as the UK, and 68 percent ownership of Walmart de Mexico," said Kevin Gardner, a spokesman at Wal-Mart. "We believe Massmart is a compelling growth opportunity."
South Africa's government-owned Public Investment Corp., which invests on behalf of civil service pension funds, and Scotland's Aberdeen Asset Management are the major shareholders who have advised Wal-Mart to consider not taking a full stake, according to Jeanine van Zyl, a retail analyst with South Africa's Old Mutual Investment Group. The goal is for Massmart to continue to be listed on the Johannesburg Stock Exchange. Without the agreement of the Public Investment Corp. and Aberdeen, the deal won't go through.
Old Mutual, which holds Massmart shares but is not a major owner, also would like to continue to see it listed, because it's the kind of company in which investors would like to have shares.
"They're an excellent quality company," van Zyl said.
A deal with Massmart would give Wal-Mart an opening to expand in South Africa, a fast-growing economy but one that's also troubled by high crime and a 24 percent unemployment rate. It also has a heavily unionized work force.
While Wal-Mart has concentrated on overseas expansion, particularly in emerging markets, it had not indicated interest in South Africa until its September announcement about Massmart.
Massmart is Africa's third-largest distributor of consumer goods, the leading retailer of general merchandise, liquor and home improvement equipment and supplies and the leading wholesaler of basic foods. The company was founded in 1990 and operates chains including Game and Makro.
Wal-Mart's overseas business accounts for about 25 percent of its revenue, generating more than $100 billion in the fiscal year that ended Jan. 31. The retailer, based in Bentonville, Ark., has more than 8,400 locations in 15 countries. Its fiscal 2010 sales were $405 billion.
Mduduzi Mbongwe, a spokesman for the South Africa Commercial, Catering and Allied Workers Union, which represents Massmart workers, said the extent of the deal doesn't concern labor.
"The key issue for us is whether, with a small stake or a larger stake, they will follow the Wal-Mart philosophy," he said. "The Wal-Mart philosophy is associated with being anti-union."
He also said the union was concerned that Wal-Mart buying practices would destroy local producers. He said the union put its concerns to Wal-Mart in a meeting in early October, and was expecting to hear Wal-Mart's response at another meeting within 10 days.
Associated Press Writer Donna Bryson in Johannesburg and AP Retail Writer Anne D'Innocenzio in New York contributed to this story.