Wal-Mart Stores is offering to buy South African retailer Massmart Holdings Ltd. for about $4.25 billion in a bid to jump-start growth beyond its sluggish U.S. business.
A deal would give the world's largest retailer an opening to expand in South Africa, a fast-growing economy but one that's also troubled by high crime and a 24 percent unemployment rate. It also has a heavily unionized work force.
Wal-Mart has focused on expanding overseas, particularly in emerging markets, but South Africa had not been an area that officials had discussed as a potential opportunity.
"South Africa possesses attractive market dynamics, favorable demographic trends and a growing economy," executive vice president Andy Bond said in a statement. Wal-Mart has sourced products there but doesn't have a retail presence, company officials confirmed.
Wal-Mart said it would pay 148 rands ($21.11) per share for Massmart, which has 201.5 million shares outstanding, according to Thomson Reuters. Further details of the proposed deal were not disclosed.
Massmart is Africa's third-largest distributor of consumer goods, the leading retailer of general merchandise, liquor and home improvement equipment and supplies and the leading wholesaler of basic foods. Massmart was founded in 1990 and operates chains including Game and Makro.
Shares of Massmart surged above Wal-Mart's offer to 149 rands ($21.29), or 10.6 percent, Monday. That's an indication that shareholders are expecting a higher offer, either from Wal-Mart or another bidder. Wal-Mart shares fell 60 cents to $53.48.
Massmart said in a statement that its board will provide a recommendation to shareholders once a firm offer is made. The two companies have entered into an exclusivity period to allow for due diligence and other pre-conditions to a deal.
Wal-Mart's overseas business makes up about 25 percent of its revenue, generating more than $100 billion in the fiscal year that ended Jan. 31. Last month, the discounter reported second-quarter results were helped by robust global growth in China, Brazil and Mexico.
Massmart, based in Johannesburg, runs 290 stores in 13 countries in Africa, with most in South Africa. It also manages eight wholesale and retail chains under various brand names. Its Game stores, Africa's largest discount chain, offer predominantly general merchandise and nonperishable groceries for home, leisure and business use.