JOHANNESBURG – Wal-Mart Stores Inc. is buying a controlling stake in South Africa's Massmart in a 17 billion rand (approximately $2 billion) deal. The investment gives the world's biggest retailer a foothold in the country as it looks to accelerate growth beyond its U.S. business.
The two retailers announced on Monday that Wal-Mart would purchase 51 percent of Massmart for 148 rand ($20.71) per share. Massmart Holdings Ltd. currently has approximately 203.5 million shares outstanding, according to Thomson Reuters.
The offer comes about a month after Wal-Mart disclosed it would likely make the partial offer instead of going with its original plan to buy all of Massmart for about $4.25 billion. The deal had sparked concerns from South African unions as well as some major stockholders.
Massmart will continue to be listed on the Johannesburg exchange, addressing the concerns of stockholders. The company, based in Johannesburg, runs nearly 290 stores in 14 countries in Africa, with most in South Africa. It also manages eight wholesale and retail chains under various brand names including Game and Makro.
Massmart, founded in 1990, 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.
Its stock traded at 143.75 rand Monday morning, up 1.45 percent from Friday's close. Massmart shares have been buoyed since Wal-Mart's interest first became public in September.
The deal with Massmart gives Wal-Mart an opening to expand in South Africa, a fast-growing economy but one that's also troubled by high crime and high unemployment.
Wal-Mart has concentrated on overseas expansion, particularly in emerging markets, as U.S. sales have been sluggish. But it had not indicated interest in South Africa until its Massmart announcement in September.
Wal-Mart's overseas business makes up 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 8,600 locations in 15 countries. Its fiscal 2010 sales were $405 billion.
While the Massmart deal allows Wal-Mart to expand its global presence further, it created tension with unions there.
South African unions were concerned about the transaction, with union leaders saying earlier this month that South African retail workers would strike if necessary to force Wal-Mart to respect labor and protect jobs — but acknowledged they had little power to stop the deal. South African unions are known for their propensity to go on strikes, which can be lengthy and sometimes violent.
Wal-Mart has said it would respect any existing union contracts and was "committed to working constructively with the local unions in South Africa."
Union leaders did not immediately return calls seeking comment Monday.
By taking a smaller slice of Massmart, Wal-Mart is alleviating some of the concerns of shareholders, because it allows Massmart to keep its JSE listing and investors can keep their stakes.
Massmart's board unanimously recommended shareholders accept the offer, which its major institutional shareholders support.
Wal-Mart International President and CEO Doug McMillon made clear his company is pursuing a regional strategy.
"The more we learn about South Africa and the surrounding countries the more we are convinced that this is an important region with attractive growth characteristics," he said in a statement.
Michelle Chapman contributed to this report from New York.