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US retail giant Walmart plans to buy out shareholders in Massmart and delist the company, which owns Makro, Game and Builders Warehouse, from the JSE.
Massmart shareholders will be offered R62 in cash. This is 53% higher than Massmart’s closing share price on Friday.
Walmart bought control of Massmart in 2010, which proved to be a disastrous deal. The value of its investment has slumped by 80% since then, as the retailer struggled in a weak economy with increased competition.
In its half-year results, released on Monday morning, the company reported a large headline loss of more than R903 million, from a loss of R359 million in the same period last year. Sales grew almost 2% to R38.1 billion.
The US giant said that it has had to provide “increasing levels of support” to Massmart, including R4 billion in liquidity during the 2020 lockdown, over recent years. Walmart converted half of the R4 billion loan into equity.
Apart from Covid-19, the civil unrest in 2021 and flooding in KwaZulu-Natal earlier this year have compounded “weak consumer demand for general merchandise and an increasingly competitive operating environment”, Walmart said.
As part of its turnaround plan, the company plans to sell or close more of its non-core assets. While this will be crucial to the long-term strategy of Massmart, it will worsen losses in the short term and will require additional capital investment into the business, Walmart said.
The development of its e-commerce strategy will also require significant additional financial investment, the company said.
“The potential offer will enable Walmart to continue its overweight support as a long-term shareholder and allow eligible Massmart shareholders the opportunity to realise value now.”
“With an expected inflow of foreign direct investment estimated at R6.4 billion, this potential offer, if finalised, represents a positive vote of confidence in South Africa by the world’s leading retailer,” Walmart said.
Massmart has established an independent board to review the terms of the offer. The independent board is advised by PricewaterhouseCoopers. Both PwC and the independent board have already considered the offer and conditions as “fair and reasonable”, and will recommend the offer to the board.
In addition, shareholders representing almost 25% of Massmart shares have been canvassed and support the offer.
Massmart CEO Mitch Slape will step down from his role at the end of the year, with Jonathan Molapo becoming the new head of the company. Molapo was previously CEO of Astron Energy before joining Massmart last year.