Wal-Mart may abandon Massmart bid over supply targets

In a move that will give the U.S. retail giant a strong foothold to expand in South Africa, Wal-Mart proposed a 16.5 billion rand ($2.3 billion) for a 51 percent stake in Massmart.

Massmart operates under many retail banners in South Africa and 13 other sub-Saharan countries with a focus largely on general merchandise, including electronics and food sales.

During the Competition Tribunal hearing for the deal Jeremy Gauntlett, a lawyer for Wal-Mart stated, “The parties may reluctantly walk away from the deal if there are conditions on local procurement.”

Bid opposed by government and labor unions
Some political parties and labor unions are opposing the takeover, claiming that it is "not in South Africa's interest” and the transaction could trigger cheap imports, layoffs and also impact local suppliers.

According to the trade unions, the deal to let Wal-Mart into the market should be scrapped unless the company imposes stiff conditions that promote the interests of domestic suppliers and takes steps to protect South African jobs.

The Competition Tribunal said the merger should be approved only if the U.S. retailer reinstates the 503 workers dismissed by Massmart as it prepared for Wal-Mart's offer.

Bones Skulu, general secretary of South Africa Commercial, Catering and Allied Workers Union (SACCAWU), stated, "We were heartened to discover that the Competition Commission, having weighed the evidence, changed its recommendation on the basis that it now agreed with the union's consistent view that the retrenchment of workers prior to the merger was connected with the merger, contrary to the claims of Walmart and Massmart.”

Some political parties and labor unions are opposing the takeover, claiming that it is "not in South Africa's interest” and the transaction could trigger cheap imports, layoffs and also impact local suppliers.

Concessions offered
In order to pacify its critics, Wal-Mart and Massmart made some concessions Monday.

They have offered not to cut jobs for 2 years after completion of the transaction. In addition, Wal-Mart pledged to recognize the existing labor agreements for a period assigned by the Competition Tribunal.

Moreover, after the official merger, the companies has volunteered a fund of 100 million rand ($US 14 million, or about 0.003% of annual sales) to develop a 3-year program to help local suppliers to meet their procurement requirements.

However, Wal-Mart rejected the call to buy a percentage of South African goods, stressing that such a condition would break world trade regulations and give competitors an unfair edge.

The Tribunal is expected to rule in the next week on whether the deal can go ahead with or without the conditions.