South African discount store Massmart Holdings Ltd., which is majority owned by U.S. giant retailer Wal-Mart Stores Inc. (WMT), has planned to buy The Fruitspot in order to grow its presence in fresh food offerings to consumers.
Based in Johannesburg, The Fruitspot is a supplier of fruits and vegetables. Though the deal value has not been disclosed, Massmart believes that The Fruitspot will be housed under Massmart's Masswarehouse division, once the deal gets finalized.
Massmart has already submitted an application to the Competition Commission in relation to a 100% acquisition of The Fruitspot, as the company is keen on expanding its business operations in butcheries, bakeries and fruit and vegetable suppliers.
Recently in June, 2011, Walmart acquired 51% stake of Massmart for $2.4 billion (16.5 billion rand), after winning approval with minimal conditions from South Africa's competition authorities. Through this deal, Massmart gained access to 50 million South African consumers, while Massmart got the benefit to leverage Walmart's global expertise in working directly with local farmers to encourage safe and high-quality cultivation.
Under the terms of the deal, Massmart must not cut jobs for two years, honour existing labor agreements and work to develop local suppliers. Unions had demanded strict targets on using local manufacturers.
Following the takeover of Massmart, Walmart also announced the creation of 15,000 jobs in South Africa within the next five years. Besides, Walmart stated that it will open new stores over that period and expand its procurement of food and consumer goods from local suppliers by an additional $8.74 billion (60 billion rand) after its tie-up with Massmart.
At the same time, Walmart also signed an agreement with its competitor Target Corp. (TGT) wherein Target will transfer leasehold interests in up to 39 sites in Canada to the company. Walmart has been operating 325 stores in Canada.
Overall, Walmart’s buy-out of Massmart was done from a purely product and sales perspective. However, some issues emerged from the authorities of South African government departments fearing that Walmart's global supply network would lead to job cuts and unfavorable conditions of employment, and hurt local procurement.
However, Walmart readily promised to open new stores and expressed its ambition to grow its food business by over 50% in five years. The company also disclosed tempting plans of carrying out a "substantial" program to train and develop thousands of local farmers, bringing into light its corporate social responsibility with black economic empowerment.
Currently, we maintain a Neutral rating on the stock. Further, Walmart holds a Zacks #2 Rank, which translates into a short-term Buy rating.
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