Deal of Good Hope

27 September 2010 By Rob Cox Follow @rob1cox

It could grate on shareholders ears to hear the U.S. retailer may pay 13 times EBITDA for South Africa s Massmart. But the $4.2 bln purchase will give WalMart a local vehicle and local knowledge to help gain access to a huge market with a profile that should suit it well.

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WalMart Stores said it made a nonbinding bid to acquire South African retailer Massmart Holdings, potentially giving the largest U.S. retailer a foothold on the African continent for the first time. The allcash offer of 148 South African rand per share values Massmart at around 30 billion rand, or around $4.2 billion at current exchange rates.

Massmart, headquartered in Johannesburg, runs 290 stores in 13 countries in Africa, with the vast majority of its stores in South Africa, and manages eight wholesale and retail chains operating under a variety of different brand names.

South Africa presents a compelling growth opportunity for WalMart and offers a platform for growth and expansion in other African countries. South Africa possesses attractive market dynamics, favorable demographic trends and a growing economy, said Andy Bond, executive vice president with responsibility for WalMart's operations in the region, including the UK and Africa.

Massmart is being advised by Deutsche Bank and Goldman Sachs.

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