Corporate magic and the imagination of public authorities
The team at Walmart’s headquarters in Bentonville, Arkansas, must feel an overwhelming sense of gratitude to South African regulators who have indicated that they should not aim to acquire more than 51% of Massmart in 2012.
Thanks to the restriction, Walmart only had to spend $ 2.4 billion (36.7 billion rand) on one of South Africa’s least attractive retail groups. Although maybe if Walmart had been able to buy 100%, it could have worked its magic on a retail conglomerate that had been cobbled together through a long no-spending acquisition strategy dating back to the 1990s.
Of course, the sad fact is that the magic of Walmart doesn’t seem to work too well outside of the United States; it has experienced difficulties in China, India, Japan and Germany.
Massmart’s initial deal was reached in November 2010 after a due diligence that lasted only eight weeks.
Andy Bond, the Walmart executive responsible for Africa operations (who now runs Poundland for Pepco), said at the time that the due diligence “underscored our confidence that this is a compelling combination that will create significant value for both companies “.
It soon became clear that the deal was not as convincing as it might initially have seemed.
Read: Will Walmart Ditch Massmart As Things Go From Bad To Worse?
Sure, value was created, but it was all for the shareholders who sold Rand 148 a share.
Cambridge and Rhino
Hopefully the sale of Cambridge Foods and Rhino will get these businesses back into good operational hands.
The two retailers were among the last to be acquired by Massmart before the deal with Walmart; they were profitable businesses that were well run at the time.
According to Massmart’s annual report for the year ended December 2020, the combined net asset value for Cambridge and Rhino was R 988.4 million and the business loss, before interest and taxes, was R 363.5 million. . Massfresh, which is also part of the deal, has a net asset value of Rand 229.4 million and a business loss (before interest and pre-tax) of Rand 136 million.
Walmart did well to get the near full NAV for Shoprite; perhaps the latter’s negotiating skills have worn off a bit since he acquired OK Bazars from South African Breweries in 1997 for R1.
The competition authorities, which Walmart will have known very well between 2010 and 2012, should give the green light.
However, unfortunately nowadays it is impossible to predict how these authorities will jump on any deal.
It is likely that Shoprite will have to close or sell any stores where there is a geographic overlap with its own USave outlets. Presumably, the final price will be adjusted for such sales.
About the competition authorities and the seemingly fanciful way they sometimes operate, news from last week that the Competition Commission is no longer blocking the sale of Burger King by Grand Parade Investment is both good news. and shocking news.
What is particularly shocking is the secrecy surrounding any new deal reached with the authorities.
It smacks of bargaining, which is never good for the industrial policy of a big economy.
The commission initially rejected the deal on the grounds that BEE’s stake would drop from 68% to 5%.
He was authorized to do so in terms of a new provision added to the Competition Act by Minister of Trade, Industry and Competition Ebrahim Patel Patel in 2017, while he was Minister of Economic Development . It was a provision that seemed designed to curry favor with the ANC nationalist camp.
Even with the best of intentions, it would be difficult, if not impossible, to apply the provision consistently. Of course, that same uncertainty gives Patel a stronger negotiating position.
Listen to Fifi Peters chat with Bakhe Majenge, Chief Legal Advisor of the Competition Commission (or read the transcript here):
Optimistic traders and banks
Results and business updates from retailers and banks generally continued to be bullish over the past week, which is encouraging news.
Hopefully our institutional shareholders will be attentive to the implications of this rebound for executive compensation.
It may be an unrealistic hope. Even the Institute of Directors feels we might have a problem with shareholder apathy on this front.
A2 Investment and Peresec Prime Brokers certainly cannot be accused of being apathetic. After building up a significant stake in York Timber, they called a shareholders’ meeting with the aim of securing the appointment of two A2 executives, Adrian Zetler and AndrÃ© van der Veen, to the board of directors.
The fact that a meeting was called suggests that a member of this board was not satisfied with the proposed new appointments.
But last week, York Timber announced that Zetler had been appointed a non-executive director and Van der Veen as Zetler’s alternate, and that the meeting had been called off. It sounds like some kind of compromise.
Meanwhile, Net1 UEPS continues to strengthen its board of directors – with the appointment of Kuben Pillay (as chairman) and Nonkululeko Gobodo – presumably in the hope of distancing itself from the controversial days when it was dominated by Serge Belamant.