Walmart (NYSE: WMT), the world’s largest retail chain, is about to take a big chunk of Africa’s economic potential now that the South African Competition Commission Tribunal has given the Bentonville, Arkansas, retail chain its blessing to buy a majority stake in Massmart.The $2.4 billion deal will give Walmart instant access to more than 50 million new customers in a dozen African countries.
The agreement comes with conditions, though. Walmart and its new partner can’t lay off employees for two years, and it must retain its labor contracts for three years, train local suppliers in how it likes to do business, and give hiring preference to employees who were laid off before the deal was reached.
The conditions were easy for Walmart to comply with, since the retailer actually proposed them to win over Massmart unions, shareholders and regulators. But opponents still worry that Walmart’s presence in Africa will lead to lower wage and fewer workers, as it has in many other U.S. cities and towns where Walmart has opened stores. Some South African unions who want more restrictions placed on Walmart’s stake in Massmart continue to threaten boycotts and strikes to get them or keep Walmart out.
But the retail behemoth rarely loses such battles and the South African deal was one it is willing to fight for. That’s because the partnership promises to be an instant revenue booster for Walmart – which reported stagnant revenues and returns last year as its customers found better deals at dollar stores such as Dollar Tree (NASDAQ: DLTR), Family Dollar (NYSE:
FDO) and Dollar General (NYSE: DO).
Many signs indicate those customers aren’t likely to return to Walmart on a regular basis when the U.S. economy improves, leaving Walmart with little choice but to seek better sales growth and returns in overseas markets. With the Massmart acquisition, Walmart will have a presence in 27 countries on five continents and likely more currency to uncover other untapped markets.
As of this writing, Cynthia Wilson did not own a position in any of the stocks named here.
