Retailer Massmart’s share price on the JSE rose by more than 45% on the morning of August 29, after the company announced that it had reached an in-principle agreement with US-based retail corporation Walmart about a potential offer to acquire any outstanding shares in Massmart is does not already owned.

If the proposed offer is made and implemented, it would result in the delisting of all Massmart ordinary shares from the main board of the JSE.

As a result, Massmart has convened an independent board to review the terms and conditions thereof, comprising Kuseni Dlamini, Olufunke Ighodaro and Lindiwe Mthimunye. This board has appointed PwC Corporate Finance as an independent expert to consider whether the potential offer is fair and reasonable to Massmart shareholders.

Subsequently, PwC issued a preliminary report finding that the terms and conditions were fair and reasonable.

As such, Massmart’s independent board, taking into account PwC’s preliminary report, is unanimously of the preliminary view that the terms and conditions of Walmart’s proposed offer are fair and reasonable, and intends to recommend to the Massmart board to propose the scheme, as well as support a standby general offer.

The proposed offer comprises R62 in cash for each ordinary share held by eligible Massmart shareholders – representing a premium of 53% to the closing share price, a 68.7% premium to the 30-day volume weighted average price and a 62.4% premium to the 90-day volume weighted average price as at August 26.

It also includes a scheme to be proposed by the Massmart board between Massmart and its shareholders whereby Walmart will acquire all of the remaining ordinary shares.

However, in the event that this scheme does not become operative for whatever reason, a standby conditional general offer (which would run concurrently with the scheme) would be implemented for the same consideration.

Walmart’s offer also includes a restructuring of the 2013 Massmart employee share plan.

The proposed acquisition requires regulatory approvals from among others the Takeover Regulation Panel, the South African Reserve Bank and the JSE, as well as any other conditions precedent that are typical of a potential transaction of similar nature.

Despite acquiring a controlling stake in Massmart in 2010, Walmart has had to provide increasing levels of support across Massmart’s businesses, which was impacted substantially in the period since the outbreak of Covid-19 in 2020.

During the mandatory national lockdowns in 2020, Walmart injected a R4-billion facility into Massmart to shore up the group’s liquidity. Walmart subsequently agreed to restructure half of this facility as equity in terms of International Financial Reporting Standards to shore up the solvency of the Massmart group.

Massmart’s management-led turnaround strategy launched in 2019 has faced many headwinds, primarily from the Covid-19 pandemic.

It was also significantly impacted by the civil unrest in July 2021, which resulted in a loss of operations and disruptions to supply chain on certain key inventory lines; severe flooding events; weak consumer demand for general merchandise; and an increasingly competitive operating environment.

Despite the difficult trading environment, Massmart says its management has continued to drive the turnaround plan.

Nonetheless, the ongoing divestiture of noncore assets, although crucial to the long-term strategy of Massmart, will have a negative impact on the profit and loss of Massmart in the short term and will require additional capital investment into the business.

In addition, the implementation of Massmart’s business plan includes, among other factors, the ongoing development of its e-commerce strategy, which will require further intervention operationally and significant additional financial investment.

In this regard, Massmart says Walmart’s further acquisition will bring with it overweight support as a long-term shareholder and enable eligible Massmart shareholders the opportunity to realise value immediately.

To date, Massmart says it has received support in favour of Walmart’s offer with respect to about 11.3% of its ordinary shares, representing about 24.6% of the outstanding ordinary shares.

Massmart reports that, while the discussions between Walmart and itself are at an advanced stage, there is no certainty that a firm offer will ultimately be made, and as such, Massmart shareholders should exercise caution when dealing in shares, until a further announcement is made.

The company’s share price on the JSE rose to R58.90 after the announcement, compared with R40.51 at the market close on August 26. By 12:15 on August 29, the share price was trading at R57.50.