Wal-Mart’s Massmart Takeover Bid Approved, Angering Unions

South African antitrust authorities approved Wal-Mart Stores Inc. (WMT)’s 16.5 billion rand ($2.4 billion) takeover of Massmart Holdings Ltd. (MSM) with the same conditions proposed by the retailers, angering labor unions.

The companies must ensure no jobs are cut for two years and that existing labor agreements are honored for three years after the purchase, the Pretoria-based Competition Tribunal said in an e-mailed statement today. Wal-Mart and Massmart should also establish a 100 million-rand supplier-development fund, it said.

“This was a very important test case” for foreign direct investment into South Africa, said Peter Attard Montalto, an economist at Nomura International Plc in London. “All this will go to show whilst South Africa is open for business, the costs and difficulties of investing are great.”

South Africa’s government and labor unions, who helped sweep President Jacob Zuma into power, opposed Wal-Mart’s entry into South Africa on concern it may result in job losses, raising criticism from opposition parties that the country could deter foreign investment. South African government departments also tried to halt the takeover by Japan’s Kansai Paint Co. of Freeworld Coatings Ltd., which won conditional antitrust approval last month.

Wal-Mart Win

The Congress of South African Trade Unions, the nation’s biggest labor federation, will encourage its 2 million members to boycott Wal-Mart stores and hold demonstrations and pickets in protest of the decision to approve the transaction, Cosatu spokesman Patrick Craven said in an interview broadcast on Johannesburg-based e-News Channel.

“It’s a victory for Wal-Mart,” he said, adding that Cosatu wanted more “concrete” conditions on the use of local suppliers imposed on the retailers for fear that Wal-Mart will use its buying power to boost imports, harming local industries and suppliers. Zuma’s administration has pledged to create 5 million new jobs over the next decade to cut the nation’s 25 percent unemployment rate.

Wal-Mart rose 52 cents to $55.22 at 4 p.m. in New York Stock Exchange composite trading. Massmart rose 1.8 percent to 142.56 rand by the 5 p.m. close in Johannesburg, extending its gains over the past 12 months to 21 percent. The rand strengthened 1.8 percent to 6.8172 per dollar.

Adding Jobs

Wal-Mart, the world’s largest employer with 2.1 million workers, will expand Massmart’s South African business, adding to jobs, Andy Bond, Wal-Mart’s executive vice-president responsible for the U.K. and Africa, said on May 11 at hearings held by the Competition Tribunal. It aims to use its 51 percent stake in Massmart, which has almost 300 stores in 14 African countries, to lead its expansion in sub-Saharan Africa.

“The big deal is Africa,” Chris Gilmour, an analyst at Johannesburg-based Absa Management Ltd., said. “The continent is the flavor of the month for investors.”

The acquisition of Massmart, South Africa’s largest wholesaler, is Wal-Mart’s second-biggest after the $11 billion takeover of U.K. retailer Asda in 1999. In terms of the antitrust conditions, the retailers will give preference to 503 workers Massmart fired last year when it starts rehiring employees, the companies said in a statement.

The transaction will be closed in “a matter of a few weeks,” Wal-Mart International Chief Executive Officer Doug McMillon said on a conference call. Massmart will now start opening new stores in Africa, he said.

More Aggressive Dividends

Massmart Chief Executive Officer Grant Pattison said on May 9 that the company plans to expand trading space by 20 percent over the next three years. Growth in floor space will boost sales by a similar margin and will also increase jobs while securing current posts, said Pattison. Its food business will expand by more than 50 percent over the next 5 years, the companies said.

Massmart is “geared toward” opening between 50 and 100 stores in the next three years, Pattison said on the conference call with reporters. The combined entity will spend about 1 billion rand a year on capital expenditure while seeking to enter the Democratic Republic of Congo and Senegal.

“We will be slightly more aggressive on investments and dividend payments,” Pattison said. The Competition Tribunal’s decision should give confidence to the investor community about South Africa as it showed that “we can rely on the rule of law,” he said.

To contact the reporter on this story: Sikonathi Mantshantsha in Johannesburg at smantshantsh@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.