Massmart Holdings shares surged by a whopping 45 percent after US retail giant Walmart announced that it made an offer to buy 47 percent of shares that it doesn’t already own in Massmart for R6.4 billion.
After the announcement yesterday morning, shares hit a high of R58.90, and in the past year, they have decreased by 26.02 percent. The group said its shareholders will be offered R62 per share in cash.
The retailer said if approved by shareholders, the retailer would be delisted from the JSE.
Massmart said that the ownership and delisting will allow it to stick to its turnaround strategy, which the company announced in 2019, with its divestment from non-core assets.
The group said it remained focused on its strategy to strengthen its core business and is investing in e-commerce, home Improvement, general merchandise, and wholesale food and liquor growth.
The group is closing 15 non-performing Game stores in South Africa and selling all 14 in East Africa.
In a call to journalists, Massmart board chairman Kuseni Dlamini said: “This potential offer by Walmart is actually the vote of confidence and an overwhelming boost of confidence in the medium to long-term prospects of South African and Africa, in a retail market.”
In its half-year results released yesterday, the company that owns Builders Warehouse, Game, and Makro reported a headline loss of more than R903 million – from a loss of R359m in the same period last year. Sales grew nearly 2 percent to about R39bn.
“The operating environment was characterised by growing inflationary pressures and increased interest rates, which created pressure on discretionary spending by consumers,” the group said.
Eight stores are not trading at the end of this reporting period due to the civil unrest in July 2021, and the flooding during April 2022.
Sales from its South African stores increased by nearly 2 percent. Total sales from the rest of Africa stores increased by 1.6 percent in rand terms, and decreased by 2.6 percent in constant currencies.
Food and liquor sales of R20.2bn increased by 7.1 percent, home improvement sales of R7bn decreased by 3.2 percent, and general merchandise sales of R10.9bn decreased by 3.6 percent.
“Significant pressure on consumers from the current economic environment resulted in consumers prioritising non-discretionary merchandise,” the group said.
Sales from its e-commerce platforms grew by 50 percent compared to the prior year period, while orders increased by 109 percent.
Massmart subsidiary, Game’s total sales for the 26 weeks of R7.4bn was 3 percent lower than the first half of 2021.
Chief executive Mitch Slape said: “After the relaunch of Game in South Africa about two months ago, the progress we have seen in Game has led us to continue to drive its business forward, and we receive a great deal of support from Walmart.
“I think the Game story is yet to be written… We continue to see positive forward moments and progress in that business. It’s a long road to turn around the business, and we continue to work on it,” Slape said.
Builders’ total sales of R7bn represented a 3.1 percent decrease compared to the same period in 2021. Makro’s total sales of R14.3bn increased by 7 percent compared to the same period in 2021.
Meanwhile, Jonathan Molapo has been appointed the new Massmart chief executive, while its current leader Slape is to step down from his role at the end of the year.
Anchor Capital equity analyst, Zinhle Mayekiso, said: “Massmart’s results were disappointing and reflected a tough macroeconomic environment and its impact on the group’s core operations. On the positive side, Massmart is starting to see small green shoots from its turnaround strategy.”
Mayekiso said Massmart also announced Walmart’s intention to acquire all of the outstanding ordinary shares for Massmart.
Buying out Massmart would allow Walmart to continue to provide overweight support to the company as the growth phase of Massmart’s turnaround strategy required increased operational intervention, and significant financial investment, Mayekiso said.
BUSINESS REPORT