Walmart looks set to buy out minority shareholders in Makro parent, JSE-listed Massmart, as the US retail giant doubles down on its South African operations despite a challenging economic environment.

The boards of the two companies have reached an “in-principle agreement regarding the terms and conditions associated with a potential offer by Walmart to acquire the outstanding shares in Massmart that it does not already own, excluding treasury shares”, Massmart said on Monday before markets opened in Johannesburg.

The potential offer would see Walmart acquiring all outstanding shares in Massmart for R62/share – a premium of 53% to Friday’s closing price of R40.51/share. It’s a 62% premium to the 90-day volume-weighted average share price.

“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 rerating,” Massmart said. An independent board, established by Massmart, has already determined that the terms of Walmart’s proposed 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. These factors have exacerbated liquidity risk at Massmart, which Walmart’s financial support has helped to mitigate.

“This support includes a R4-billion 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.”

New CEO

“With an expected inflow of foreign direct investment estimated at R6.4-billion, this potential offer, if finalised, represents a positive vote of confidence in South Africa by the world’s leading retailer. As a credible and high visibility international enterprise, with a 12-year operational history in South Africa, Walmart’s potential offer could stimulate investor interest and confidence in the face of depressed local and international investor sentiment, thereby assisting in the economic recovery of the country.”

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At the same time, Massmart has announced that its Walmart-appointed CEO, Mitchell Slape, will step down at the end of the year. He will be replaced by Jonathan Molapo. Molapo was appointed as Massmart’s chief operating officer in January, having joined the retail group from Astron Energy, where he was CEO from June 2018 to December 2021.

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Prior to this, Molapo was employed by Puma Energy and Total SA Group, where he held roles as chief operating officer and executive vice president for Central and East Africa, respectively.