Bloomberg News

Wal-Mart’s Massmart Purchase Faces South Africa Court Appeal

October 20, 2011

(Updates with comment from companies’ lawyer from ninth paragraph.)

Oct. 20 (Bloomberg) -- South African government lawyers urged the Competition Appeal Court to compel regulators to review a decision allowing Wal-Mart Stores Inc. to buy control of Massmart Holdings Ltd., saying they failed to adequately consider the public interest.

The Competition Tribunal ruled on May 31 that the world’s biggest retailer could proceed with the deal on condition no jobs are cut for two years and the companies set up a 100 million-rand ($12.4 million) fund to assist local suppliers and manufacturers. The government objected, saying the conditions were inadequate to protect the economy and prevent a surge in imports undermining manufacturing output.

“The question before court is whether the merger can or cannot be justified on public-interest grounds,” Wim Trengove, the government’s senior counsel, told the court today. “The tribunal erred” by failing to place the onus on the companies to prove they wouldn’t increase imports and destroy jobs.

Wal-Mart, based in Bentonville, Arkansas, paid 16.5 billion rand in June for a 51 percent stake in Massmart, South Africa’s biggest food and general-goods wholesaler. The U.S. company outlined plans on June 26 to create 15,000 jobs in South Africa within five years and allocate most of an expected 60 billion rand in additional purchases of food or fast-moving consumer goods to local suppliers in that period.

Ministers’ Request

In court papers filed on July 20, Economic Development Minister Ebrahim Patel, Trade and Industry Minister Rob Davies and Forestry and Fisheries Minister Tina Joemat-Pettersson said the transaction should be reconsidered because the tribunal’s hearings were flawed.

The regulator failed to secure adequate information from the retailers about their product sourcing or how it would change, and allocated insufficient time to question witnesses, Trengove said.

At an investor meeting last week, Doug McMillon, Wal-Mart’s international chief executive officer, said his company couldn’t commit to specific procurement targets requested by the government.

“What we are happy to do is to invest and develop this local supplier base,” McMillon said.

‘No Serious Debate’

Allegations that Massmart would cause job losses by importing more goods remain unproven, and there’s no evidence of the companies having withheld relevant information from the tribunal, Jeremy Gauntlett, senior counsel for Wal-Mart and Massmart, told the court today.

“Mergers are an attribute of commercial activity, which are not in themselves bad,” he said. “There was no serious debate before the tribunal that one was looking at a significant lowering of prices” as a result of Wal-Mart’s entry into South Africa.

A three-member panel headed by Judge Dennis Davis is hearing the case, which is scheduled to run until tomorrow and reconvene on Oct. 24 if more time is needed. The court usually takes several weeks to deliver its rulings, which can be challenged in the Supreme Court of Appeal.

The South African Commercial, Catering and Allied Workers Union has filed a separate appeal against the approval of the takeover of Johannesburg-based Massmart on the grounds that the tribunal failed to take adequate consideration of the public interest. The review and appeal applications are being heard simultaneously, with both opposed by Wal-Mart and Massmart.

Should the court decide against referring the decision back to the tribunal, it may either uphold the approval of the takeover or rule that it should have been rejected or subjected to different conditions, Davis said.

About 50 labor union members staged a peaceful protest against the takeover outside the courthouse today.

--With assistance from Matthew Boyle in New York. Editors: Tom Lavell, David Risser

To contact the reporter on this story: Mike Cohen in Cape Town at

To contact the editor responsible for this story: Andrew J. Barden at

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