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S.African court approves Wal-Mart takeover

Published on 09/03/2012

A South African court approved on Friday Wal-Mart's $2.2 billion takeover of local chain Massmart, giving the world's biggest retailer its first foothold in Africa.

The case is seen as a bellwether for foreign investment in South Africa, which is trying to attract major injections of cash into everything from railways to power plants.

Three government ministers had asked the Competition Appeal Court to review the terms of Wal-Mart’s 16.5 billion rand (1.7-million euro) purchase of a 51-percent stake in Massmart.

The court rejected the appeal and signed off on the deal, but imposed some new conditions. It also ordered a study within three months on how small businesses could benefit by selling local products into Wal-Mart’s global supply chain.

The government welcomed the ruling and denied that their challenge would scare off would-be investors in Africa’s largest economy, saying the state had to ensure local benefit from the entry of the game-changing global giant.

“One of the red herrings that has been thrown around about this particular process has been about whether this is a generalised statement on foreign direct investment,” said Trade and Industry Minister Rob Davies.

“It’s not correct and misleading to make those big leaps — to say… we are negative about foreign investment. Not at all.”

The court acknowledged concerns about the impact of the takeover, with fears that local suppliers and jobs will be hit by the US retailer’s global buying power amid an official unemployment rate of 23.9 percent.

But it said South Africans will benefit from lower prices that could have job creation effects that would outweigh possible job losses.

“There was insufficient evidence to conclude that the deterimental effects of the merger would outweigh the clear benefits,” stated a summary of the ruling.

Massmart executive Brian Leroni told reporters that the companies looked forward to working with the government and labour in developing local suppliers.

“Massmart and Wal-Mart welcome the decision that has been handed down,” he said.

The court did agree to requests by a union for some conditions on the deal, including a two-year ban on job losses and the reinstatement of 503 retrenched employees.

The merging parties have agreed to a 100-million-rand fund to develop local suppliers but the court found that there was not enough detail on how this would work.

With the new study, “the court will then be empowered to formulate the mandate and the conditions by which such a fund or similar proposal would operate,” the summary said.

Despite losing the case, Economic Development Minister Ebrahim Patel praised the study for local suppliers, saying it was “an excellent route” by the court, and that the court had acknowledged the state’s chief concerns.

South Africa’s powerful trade unions have sharply criticised the deal, saying Wal-Mart’s entry would hurt local manufacturers by increasing imports.

Wal-Mart is entering South Africa’s pro-worker labour environment, where unions regularly embark on mass action strikes, with a reputation as being anti-union.

The court has ordered it to honour existing labour agreements for at least three years.

Massmart runs nine wholesale and retail chains with 288 stores in 14 African countries.