Walmart wants to take full control of Massmart
Article by Bleuenn Féquant, published on September 7, 2022
On August 29, Walmart launched a US$377.6 million offer (53% above the closing stock price) to fully acquire Massmart, which operates Builders, Game, Masscash and Makro stores in South Africa. The world’s largest retailer acquired 51% of the South African retailer in a US$2.3 billion deal in 2010.
However, over the last 12 years, Massmart lost nearly 75% in value. The group suffered from fierce competition from Shoprite (sales of US$11.2 billion in the year to June 2022 up by 9.6%) and also Woolworths. In 2021, local rivals achieved gross margins of 25% for Shoprite and 36% for Woolworth, compared to just 19% for Massmart. The restructuring plan launched in 2019 by C.E.O. Mitchell Slape, which included selling non-core assets, discontinuing fresh produce at Game stores, and cutting costs, was stalled by Covid-19, and then the July 2021 riots, which resulted in numerous casualties.
In 2021, Massmart’s overall total loss reached US$97.43 million, compared to US$60 million in 2020. During the civil unrest of July 2021, 43 stores and two distribution centers were closed. Massmart estimated the related impact, which ranges from inventory and asset write-downs to store closures, at US$274 million. During the first half 2022 (closed in June), business had not improved. Massmart posted a net loss of US$64 million, up from US$61 million a year earlier.
With Amazon about to enter South Africa in the first half 2023, Massmart’s business could deteriorate even further. Walmart intends to take the business private by delisting it from the Johannesburg Stock Exchange, and thus privatise the company. This would allow more flexibility in investments but also a reduction in costs. For this new start, the current C.O.O. Jonathan Molapo will succeed Mitchell Slape at the head of the company. One of his priorities will be to expand Massmart’s e-commerce business, which “will require significant additional financial investment,” he said in a statement.