South Africa approves Wal-Mart bid, govt could take action

South Africa approved Wal-Mart’s R16.5 billion (US$2.4 billion) bid for control of retailer Massmart with minimal conditions on Tuesday, giving the world’s top retailer a big boost in its plan to expand in fast-growing Africa.

South Africa’s Competition Tribunal told Wal-Mart not to cut jobs for two years, honor existing labor agreements, and work to develop local suppliers, concessions the US firm had earlier proposed itself.

The deal gives Wal-Mart a 51 percent stake of Massmart, a discount retailer that sells everything from liquor to televisions and has a presence in at least a dozen African countries.

The decision will be seen as a major advance for Wal-Mart, which had said it could drop its offer if the government imposed targets on using local suppliers.

“This is good news. It included concessions put forward by both parties so it’s a victory all round,” said Paul Theron, CEO of Johannesburg-based asset manager Vestact.


“It shows that South Africa is open for business, that large corporates are potential players for outside investment.”

Massmart must also “give preference” to reemploying 503 workers fired in 2010, set up a R100 million (US$15 million) fund to help develop local suppliers, and not challenge SACCAWU’s right to represent bargaining units for three years, the tribunal said.

The two companies said in a joint statement they were “pleased” with the decision and expected Massmart’s food business to grow by 50 percent over the next five years.

The decision was a victory for Wal-Mart, as it did not impose restrictions on where it sources it goods, said Brian Sozzi, a New York-based analyst at Wall Street Strategies.

“In two years it looks like they can go to town on labor costs,” he said.

“The whole thing with them is to get goods into the South African market as cheap as possible and sell them as cheap as possible.”

However, the ruling is a blow to South Africa’s influential labor unions, one of which is already considering an appeal.

“We are meeting with our legal representatives to explore legal options,” said Mike Abrahams, a spokesman for the South Africa Commercial, Catering and Allied Workers Union (SACCAWU), adding that the union could consider appealing to the Competition Appeals Court.

That could further delay the deal, which was first announced in September 2010.

The deal was a test case for major foreign investment in South Africa, which has the continent’s deepest capital markets but where unions are in a coalition with the ruling African National Congress.

Three government departments – economic development, trade and industry, and forestry and fisheries – and the unions had lined up against the deal, asking the tribunal to impose targets on local procurement and a freeze on job cuts.

The government and unions have said Wal-Mart’s global supply network could lead to a flood of cheap imports, sparking job losses and squeezing local companies.

“We would have hoped that the deal would be rejected or at least much more stringent conditions be imposed,” said Patrick Craven, a spokesman for the COSATU union federation.

“Our biggest concern remains completely unanswered, and that is the knock-on effect on jobs in other retailers and the manufacturing industry.”

The three departments said in a joint statement late on Tuesday they would need further study to determine whether the conditions were sufficient enough to prevent widespread job losses.

“Based on the outcome of the study of the conditions and the responses of Wal-Mart/Massmart, we will decide on the next steps to take. Government reserves its legal options at this stage,” the three departments said.


http://www.tralac.org/cgi-bin/giga.cgi?cmd=cause_dir_news_item&cause_id=1694&news_id=104482&cat_id=1026

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