Walmart to Acquire African Retailer Massmart

When the United States doesn't produce the results desired for the Walmart, where does the mega retailer turn for its growth? The answer is simple, International. The biggest growth vehicle for the world's largest retailer is no longer the small rural areas once dominate in the early 1980's and 1990's. Walmart is still attempting to expand in metropolitan areas with smaller formatted stores.

Walmart International, led by President and CEO Doug McMillion, noted the "opportunity to leverage the experience" to "effectively serve customers, create opportunities, and add shareholder value" with the pending acquisition of Massmart.

Massmart, which is located in Johannesburg, South Africa, is the market leader in food and one of the largest distributors of general merchandise on the entire continent. Massmart is no stranger to retailing either. The portfolio of stores includes 290 stores in 13 countries. Massmart also operates eight wholesale and retail stores operating under different brands. Massmart has a similar branding approach to the model which works for Walmart.

Walmart operates over 8500 retail stores in 15 different countries. Walmart employees over 2 million associates in 55 different branded banners. With over $405 billion in sales, the potential acquisition of Massmart will add another critical piece to the world market.

The deal is still considered a non-binding proposal. The final approvals are not detailed as of yet. The details which have been released are the amount Walmart wants to pay for Massmart. The financial terms of the deal have Walmart paying $4.25 billion ($29.8 rand) for the Sub-Saharan company.

After the announcement of the deal, shares of Massmart jumped over 12% while shares of Walmart lowered 0.2% in early German market trading.

The partnership between Massmart and Walmart could potentially be successful. Both retailers manage on similar principles of high-volume, low-margin, and low-cost. Massmart even has similar departmental distribution rates within its stores. Food comprises 53%, general merchandise 42%, and home is 13%.

Both Massmart and Walmart are looking forward to the partnership, citing a time of exclusivity.

Source: investors.walmartstores.com

Source: businessday.co

Source: bloomberg.com