1:16 PM
By David Dolan
JOHANNESBURG | Mon Nov 29, 2010 2:42pm EST
JOHANNESBURG (Reuters) - Wal-Mart Stores Inc (WMT.N) has agreed to pay $2.3 billion for control of Massmart Holdings Ltd (MSMJ.J), giving the world's largest retailer a substantial presence in South Africa and paving the way for further expansion across the continent.
The Wal-Mart tie-up will help discount retailer Massmart speed up expansion in sub-Saharan Africa and increase its food retailing business, the South African company's chief executive said on Monday.
The deal will also likely pit Wal-Mart, which has long battled with organized labor in the United States, against South Africa's powerful trade unions, some of which have threatened to strike against the U.S. giant.
Massmart's chief executive, Grant Pattison, said the company would retain its local listing and South African management after the deal. Analysts have said local expertise would be critical to avoid a bruising union fight.
"What isn't going to happen is a bunch of Wal-Mart people around here start running the company," Pattison said on a conference call with reporters.
"South African management will continue to manage the business."
The two companies said in a joint statement Wal-Mart would pay 148 rand for a 51 percent stake in the South African company, which has a presence in 14 countries in Africa. The value of the deal is 16.5 billion rand ($2.3 billion), Massmart executives said.
Massmart shares were up 0.2 percent at 141.99 rand. Wal-Mart's bid, including the price, was first announced in September.
Wal-Mart shares fell 23 cents to $53.51.
NEW BALL GAME
"Owning a majority stake allows them that degree of control that they need at this stage, while it also appeases (Massmart's) shareholders," said Natalie Berg, global research director at Planet Retail, an industry research firm.
"Wal-Mart is not going to be making many changes initially. Even though they are present in 16 countries around the world, ranging from India and Costa Rica, retailing in South Africa is a whole new ball game."
The move also requires Wal-Mart to commit less capital than buying the company outright, while giving it a chance to learn about the African market.
"We probably like this a little better because (Wal-Mart is) getting control, but technically dipping a toe in the water," Edward Jones analyst Matt Arnold, said.
Wal-Mart sees international expansion as an important area for growth, as comparable sales at its U.S. discount stores have fallen in each of the last six quarters.
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