It puts Wal-Mart's immense size into perspective when one realises that its R30 billion offer for Massmart, the owner of Makro and Game, amounts to a meagre 2% of the retail giant's value.
This also indicates that Wal-Mart's intentions are strategic. The deal is not material, but will give it a beachhead in Africa to secure its future strategic direction.
For Massmart, and SA, the deal is far more significant.
Simon Brown, a spokesman for Standard Bank Online Share Trading, said many foreigners were likely to re-invest the profits from the proposed deal into other JSE stocks.
"So the likely effect will be rand strength," he said.
Pallavi Ambekar, a portfolio manager at Coronation Fund Managers, did not think Massmart's growth strategy would change much, but said it could become be more aggressive in its expansion.
Warren Buys, portfolio manager at Cadiz Asset Management, said the likes of Shoprite, Pick n Pay and Spar should prepare themselves for tough competition.
"Competitors will feel the pressure of competitive pricing that Wal-Mart is known for."
Wal-Mart announced a R30 billion nonbinding offer for Massmart this week. The offer was at a 10% premium to Massmart's share price and the news propelled the price above the R148-a-share offer.
The announcement ended a year's speculation that Wal-Mart executives were "shopping around" to acquire one of SA's retailers, with Shoprite and Massmart always regarded as the front runners.
The proposed offer is subject to a number of preconditions including due diligence, which has already started.
Trade unions represent one of the biggest hurdles to the deal. Union federation Cosatu's Western Cape branch said it would oppose any bid by Wal-Mart to open stores in the province.
"These companies are notoriously anti-union and anti- workers' rights, and are an affront to workers' rights where ever they operate.
"We call on urgent national action from government to investigate this hostile move by Wal-Mart.
"Companies whose practice it is to abuse workers' rights are not welcome in SA," the union said.
However, Doug McMillon, chief executive of Wal-Mart International, said Wal-Mart was willing to abide by SA's labour laws.
"We also look forward to serving communities and working with the leaders to support the continued development and momentum in the region."
Wal-Mart has been looking at entering the African market and has viewed SA as a springboard to the rest of the continent.
Acquiring Africa's third- largest distributor of consumer goods will give Wal-Mart exposure to 14 countries in sub-Saharan Africa. Massmart has more than 288 stores across the continent.
Massmart chief executive Grant Pattison said Wal-Mart had made an offer which he felt was "good enough" to present to the board. Massmart's management would be retained, he added.
Thom McLachlan, the SA bureau chief of news service dealReporter, said Massmart's strategy was "to be aligned with a global player like Wal-Mart."
He said Pick n Pay and Shoprite appeared less interested in being bought out by the likes of Wal-Mart and that might explain why Wal-Mart didn't go for them.
McMillon said: "This region of the world fits with our focus on large, high-growth markets."
Wal-Mart has more than 8613 retail units in 15 countries and boasts 55 brands.
Source: Business Times
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