South Africa

Walmart massively overpaid for Massmart – Evan Walker

Evan Walker, portfolio manager at 36ONE, said Walmart overpaid for Massmart in 2010, which explains the much lower price-per-share in its latest offer.

On Monday, Massmart announced that it had reached an agreement for Walmart to buy all the shares in Massmart, which owns Makro, Game, and Builders.

Walmart is offering R62 ($3.69) in cash for each share held by eligible Massmart shareholders.

It is significantly less than in 2010 when Walmart acquired 51% of Massmart for R148.00 (US$20.7) per share in a deal worth R17 billion (US$2.4 billion).

Commenting on the big difference in the price per share between 2010 and now, Walker said Walmart massively overpaid for Massmart twelve years ago.

“Walmart paid a 50% premium to the price-to-earnings ratio of the retail sector in South Africa at the time,” he said.

Evan Walker, portfolio manager at 36ONE

Walker added that the Massmart acquisition was a way for Walmart to pivot and expand into Africa, which never came to fruition.

At the time, Walmart CEO Doug McMillon said the acquisition was an opportunity to save people money in all regions of the African continent where Massmart operated.

Commenting on Walmart’s decision to buy all of Massmart, Walker said it is an interesting development considering Walmart has not been successful outside of the United States.

“To me, it is all around saving face. It is slightly embarring given the loss in the Massmart business,” he said.

He added that the problem is not with current CEO Mitch Slape, who walked into a struggling business.

“Previous management did not do what had to be done, and unfortunately, Massmart has just gone from bad to worse,” he said.

Walmart’s Massmart deals
Measure 2010 2022
Percentage of Massmart 51% 47%
Price per share (ZAR) R148.00 R62.00
Price per share (USD) $20.70 $3.67
Deal value (ZAR) R16.5 billion R6.4 billion
Deal value (USD) $2.3 billion $378 million