A South African court Friday cleared the way for the world’s top retailer Wal-Mart to take its first foothold in Africa by dismissing a government bid to set aside its $2.2 billion takeover of local chain Massmart.
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.
“The arguments of the ministers do not justify the setting aside of the (competition) tribunal decision,” said Judge Dennis Davis.
The court ruled against an application by three government ministers seeking to review and set aside the deal approved in May for Wal-Mart’s 16.5 billion rand (1.7-million euros) purchase of a 51-percent stake in Massmart.
However, it ordered that a study be done within three months to investigate how small and medium-sized businesses could participate in Wal-Mart’s global supply chain and ensure they reap benefits from the merger.
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, one of the three ministers who challenged the deal.
“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 legitimate concerns about the impact of the merger, with the state fearing local suppliers and jobs will be hit by the US giant’s global buying power.
But it said South Africans will benefit from lower prices which could boost more jobs than potential losses from the merger.
“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 Competition Appeal Court of South Africa partly upheld an appeal of the deal from a trade union, and put in place conditions on the merger decision.
These included a two-year ban on job losses, ruling in favour of a union with 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 and if it would fulfil required protections for the public interest.
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 bid, 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.
Massmart runs nine wholesale and retail chains with 288 stores in 14 African countries.