JOHANNESBURG/LONDON (Reuters) � Wal-Mart (WMT.N) is in talks to buy South Africa's Massmart (MSMJ.J), a $4 billion deal that would give the U.S. retailer a big presence in fast-growing Africa and bolster its emerging markets strategy.
The world's largest retailer has been hit by weakness in the United States, where low-income shoppers are particularly vulnerable to unemployment and higher petrol prices. It has responded by focusing on cost cuts and international growth.
Buying Massmart, South Africa's third-largest listed retailer by value, would give Wal-Mart a considerable network in Africa's biggest economy and a foothold in 13 other countries in sub-Saharan Africa.
Home to some of the world's fastest growing markets, Africa also boasts an emerging middle class and roughly 1 billion consumers, making it an increasingly attractive target for overseas investors.
"Massmart is a very good fit with their business," said Bryan Roberts, global research director at industry research firm Planet Retail in London.
Other international retailers could eventually bid for one of Massmart's local competitors to tap the potential of sub-Saharan Africa, he said.
"There's no shortage of good businesses that could be acquisition targets -- Shoprite (SHPJ.J), Woolworths (WHLJ.J) and the like."
Massmart and Wal-Mart said the U.S. company had made a non-binding proposal of 148 rand per Massmart share, valuing it at around 30 billion rand ($4.1 billion) or a premium of nearly 10 percent over Thursday's close of 134.75 rand.
Massmart said it has granted the U.S. firm an exclusivity period and said there was no certainty of a formal offer.
Shares of Massmart jumped more than 11 percent and were up 10.9 percent at 149.48 rand as of 5:58 a.m. ET, slightly exceeding the proposed offer price.
Shoprite shares were little changed while Woolworths stock rose around 1.4 percent.
Wal-Mart's bid values Massmart at 26.3 times its 12-month adjusted earnings per share, according to Thomson Reuters data. That compares to 21.5 times for Shoprite and 15.5 times for Woolworths.
The deal could boost South Africa's rand, which would benefit from an inflow of currency. The rand was near a 2-1/2 year high on Monday at 7.0100 to the dollar.
VOTE OF CONFIDENCE
Massmart sells general merchandise, electronics and food via a low-margin, high-volume model. It runs nearly 288 stores and nine different retail and wholesale chains.
It has also been one of the most aggressive of South Africa's retailers in expanding into the continent.
Wal-Mart's proposal is the third bid by a big overseas firm for a South African company in recent months.
"It's a big vote of confidence for the South African retail economy and for South Africa," said Syd Vianello, an analyst at Nedcor Securities.
HSBC (HSBA.L) is in talks to buy up to 70 percent of Nedbank (NEDJ.J), South Africa's fourth-largest lender, while Japan's Nippon Telegraph and Telephone Corp (9432.T) agreed in July to buy IT firm Dimension Data (DDTJ.J) (DDT.L) for $3.2 billion.
By joining forces with Wal-Mart, Massmart could put more pressure on its rivals, said Nedcor's Vianello.
"It also has lots and lots of pricing and competition implications for the South African retail industry. Wal-Mart is the world's largest retailer, it can source products cheaper than anyone else in the world."
Both Massmart and Shoprite had long been seen as potential targets for Wal-Mart, which has over 8,600 retail units around the world but no material presence in Africa.
Massmart shares have risen more than 50 percent this year, compared to a rise of more than 36 percent in the South African retailers index (.JGERE) and a little over 2 percent in the broader market (.JTOPI).
Deutsche Bank (DBKGn.DE) and Goldman Sachs (GS.N) advised Massmart.
(Writing by David Dolan; Editing by Michael Shields)
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