Shoprite acquires Massmart’s non-core assets to bolster its low-price position

CAPE-Town based Shoprite, Africa's biggest retailer, said on Friday that it would acquire Massmart's wholesale and retail chains for R1.4 billion, beating rival Pick n Pay to the deal, and bolstering its leading position in the discount retail market.

Shoprite said the transaction comprised 56 Cambridge Food business and Rhino Cash and Carry business, including 43 adjacent liquor stores, the Fruitspot business and Massfresh Meat business with a total of four facilities, and 12 Masscash Cash and Carry stores.

Shoprite chief executive Pieter Engelbrecht said on Friday that the group wanted to combine organic and acquisitive growth as part of the focus on its low-price leadership position.

“The rationale for this transaction is not just premised on the fact that, as a result of our operational expertise, we believe we can profitably run these operations; it also gives us immediate access to opportunities that were on our medium term to-do list. We are well positioned to integrate and grow these businesses, and as a result, Shoprite can ensure the sustainability of employment of the staff within these businesses,” Engelbrecht said.

Shoprite said the target businesses' turnover for the 52 weeks ended December 27 last year was R10.8bn.

“The transaction has been structured in a manner that ensures the sustainability of jobs in the target businesses, with all applicable staff of the target businesses becoming group staff following the conclusion of the transaction,” Shoprite said.

Massmart, a subsidiary of US retail giant Walmart, said on Friday that the proceeds of the sale would be used to pay down drawn bank facilities.

“The disposal adds a cash injection into the group,” said Massmart, adding the disposal would also be effected in a responsible manner to preserve jobs via Section 197 of the Labour Relations Act No 66 of 1995.

Massmart said it expected the transaction to become effective early next year once all the conditions become unconditional. The transaction remains subject to conditions including regulatory and competition approvals.

Previous Pick n Pay chief executive, Richard Brasher reportedly said at the right price the group would acquire the assets. Pick n Pay operates food and grocery chain Boxer, which serves the lower segment of the market and has continued to gain market share.

US retail behemoth Wal-Mart Stores originally bought a $2.4 billion (currently R37bn) majority stake in South African retailer Massmart, in 2011, with an eye on the potential of the continent's burgeoning consumer class.

However, in March, Massmart placed its Masscash, Cambridge and Rhino businesses up for sale, after classifying them as noncore assets.

Shoprite's shares on Friday gained 1.62 percent to R169.70, while Massmart's shares rose 1.05 percent to R57.04.