SOUTH AFRICA – American multinational retail corporation, Walmart, plans to acquire all of the outstanding shares of South Africa based Massmart that it does not already own, excluding treasury shares, and if successful delist from the JSE, with CEO Mitchell Slape stepping down at year-end.

The majority owner, Walmart, has offered to purchase the remaining stake in the owner of Makro, Game and Builders Warehouse, for a price of R62 (US$3.6) per share by way of a scheme of arrangement or a general offer if the scheme of arrangement does not become operational.

This represents a premium of 53% to the closing share price and a 62% premium to the 90-day volume weighted average share price calculated at close of market on 26 August 2022.

Walmart acquired 51% stake in Massmart Holdings in 2011 for R17 billion (US$2.4 billion) then.

Commenting on behalf of the Massmart Board, Chairman Kuseni Dlamini said, “The Massmart Independent Board, after taking into account the preliminary report of the Independent Expert, is unanimous in its preliminary opinion, that the terms and conditions of the Potential Offer are fair and reasonable.”

The potential offer, if finalised, will provide Massmart with needed access to ongoing financial and operational support from Walmart to sustain the group’s turnaround, which has been impeded by external factors such as Covid-19-related trading restrictions, civil unrest in KwaZulu-Natal, and a challenging economic environment, the group said.

These factors have exacerbated liquidity risk at Massmart, which Walmart’s financial support has helped to mitigate.

The support includes a R4 billion (US$235.9m) loan provided by Walmart to Massmart at the height of the Covid-19 lockdown in April 2020, 50% of which was subsequently converted, in December 2021, into equity through a perpetual fixed rate unsecured note.

In addition, the Potential Offer presents an opportunity for minority shareholders to realise immediate value in an environment where there are no near-term catalysts for a Massmart re-rating.

The announcement was made during the release of the company’s half year results with total sales from continuing operations for the 26 weeks to 26 June 2022 totalling R38.1 billion (US$2.25 billion), representing an increase of 1.9%, with comparable store sales increasing by 4.3%.

Gross margin from continuing operations decreased by 95bps to 19.6%, while total continuing operations expenses grew at 4.4%, well below inflation of 7.4%.

Margin and inflationary pressure resulted in trading profit from continuing operations declining from R792.1 million (US$46.7m) in the prior year period to R377.3 million (US$22.25m) in this reporting period.

Pleasingly cash flow generation for the first half of the financial year improved by R1.4 billion (US$82.5m) compared to the prior year, while average net debt, excluding lease liabilities, increased by R1.6 billion (US$94.3m), driven by the higher opening net balance compared to the prior year.

Sales from its online platforms grew by 50.0% compared to the prior year period and Gross Merchandise Value (GMV) increased by 108.0% over the same period.

In a move unrelated to the potential offer, Massmart has also announced that its current CEO Mitchell Slape will be stepping down from his role to be succeeded by company’s Chief Operating Officer Jonathan Malapo effective 1st January 2023. Read more here.

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