Wal-Mart May End Massmart Bid If Supply Terms Forced
May 17, 2011, 8:54 AM EDTBy Sikonathi Mantshantsha
(Corrects to say jobs won’t be cut for two years in story published yesterday.)
May 16 (Bloomberg) -- Wal-Mart Stores Inc., the world’s largest retailer, may abandon efforts to buy control of Massmart Holdings Ltd. if South Africa forces local procurement conditions on the retailers, the companies said.
Wal-Mart offered to buy 51 percent of Johannesburg-based Massmart for 16.5 billion rand ($2.45 billion) in a bid opposed by the South African government and labor unions concerned about jobs and protecting local manufacturers and suppliers. As many as 4,000 jobs could be lost should Massmart shift just 1 percent of its procurement to imports, the government said.
“The parties may reluctantly walk away from the deal if there are conditions on local procurement,” Jeremy Gauntlett, senior counsel for the two companies, said at antitrust hearings held in Pretoria today. Imposing conditions that Wal-Mart buy South African goods will contravene international trade accords and give competitors an unfair advantage, he said.
Wal-Mart and Massmart offered not to cut jobs for two years and pledged to uphold existing labor agreements for as long as the Competition Tribunal sees fit, Gauntlett said. While the companies still maintain no conditions should be imposed, it also offered to establish a 100 million rand supplier development fund if the transaction is approved, he said.
Recommendation Change
The Competition Commission, which in February recommended to the Tribunal that the transaction should be approved without any conditions, changed its stance on the transaction after hearing evidence it didn’t previously have the chance to consider, said Patric Mtshaulana, senior counsel for the Pretoria-based commission.
The commission wants 503 Massmart workers who were fired last year to be reinstated, Mtshaulana said at the hearings. The commission also wants the Tribunal to rule that Massmart’s existing labor agreements to be honored for the next three years, he said.
“The merging parties’ commitment not to retrench any workers is not enough,” said Paul Kennedy, senior counsel for a group of labor-union organizations, including the Congress of South African Trade Unions. “The merging parties remain vague about the various labor issues and local procurement.”
The acquisition is Wal-Mart’s second-biggest after the $11 billion takeover of U.K. retailer Asda in 1999. Wal-Mart aims to use Massmart to pilot its expansion in the sub-Saharan region.
The Competition Tribunal concluded its hearings on the proposed deal today and must deliver its ruling within ten working days.
Massmart shares fell 25 cents, or 0.2 percent, to 139.75 rand in Johannesburg today, giving the company a market value of 28.5 billion rand.
--With assistance from Mike Cohen in Cape Town. Editors: Vernon Wessels, Ana Monteiro, Gordon Bell.
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
