Walmart wants to buy all of Massmart

Massmart’s board of directors and Walmart have reached an agreement for Wallmart to buy all the shares in Massmart, which owns Makro, Game, and Builders.

Walmart is offering R62 in cash for each share held by eligible Massmart shareholders. It represents:

• A 53% premium to the closing share price.

• A 68.7% premium to the 30-day volume weighted average price.

• A 62.4% premium to the 90-day volume weighted average price as at 26 August 2022.

Walmart will propose a scheme to the Massmart Board where Walmart will acquire all of the remaining Ordinary Shares.

If the scheme does not become operative for whatever reason, a standby conditional general offer would be implemented for the same consideration.

If the deal goes through, it will result in the delisting of Massmart from the JSE.

Behind the deal

Walmart acquired control of Massmart in 2010, which was a landmark transaction in the South African consumer landscape.

However, over the past decade, Walmart has had to provide increasing levels of support across Massmart’s businesses.

This support has deepened substantially since the outbreak of Covid-19 in 2020.

During the mandatory national lockdowns in 2020, Walmart injected a R4 billion facility into Massmart to shore up the group’s liquidity.

Walmart subsequently agreed to restructure half of this facility as equity in terms of International Financial Reporting Standards to shore up the solvency of the Massmart group.

The management-led turnaround strategy launched in 2019 has faced many headwinds, including Covid- 19 but and civil unrest in 2021.

It resulted in a loss of operations and disruptions to the supply chain on certain key inventory lines, flooding experienced in parts of the country, weak consumer demand for general merchandise and an increasingly competitive operating environment.

Massmart management continued to drive the turnaround plan despite the difficult trading environment.

The ongoing divestiture of non-core assets, although crucial to the long-term strategy of Massmart, will hurt the profit and loss of Massmart in the short term. It will also require additional capital investment into the business.

In addition, the implementation of Massmart’s business plan includes, inter alia, the ongoing development of its e-commerce strategy, which will require further intervention operationally and significant additional financial investment.

The 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.