Procurement targets could cause SA merger to collapse

18 May 2011

18 May 2011 | Lindsay Clark

Wal-Mart has made a R100 million (US$14.5 million) commitment to local suppliers in its proposed merger with South Africa’s Massmart, but says it could walk away from the deal if specific procurement targets suggested by the country’s government are imposed.

In the summing up of the tribunal hearing adjudicating the proposed merger, legal representatives for Wal-Mart, one of the world’s largest retailers, said that the imposition of local procurement targets could jeopardise the deal.

Such conditions “would force the merging parties either to appeal such conditions or reluctantly to walk away from the transaction if they were imposed,” said Jeremy Gauntlett, the companies’ legal representative at the tribunal.

Meanwhile, Wal-Mart has proposed a three-year R100 million (US$14.5 million) supplier development fund as a gesture of goodwill if the proposed merger is approved by the Competition Tribunal.

Walmart International CEO Doug McMillon said: “We continue to believe the proposed merger will increase competition and benefit the stakeholders related to this transaction. In an effort to increase the comfort of those involved, we feel that these proposed commitments demonstrate our good faith and will allow us to collectively serve customers in South Africa and help them save money and live a better life.”

Government legal representative Rafik Bhana said that the government’s argument, that the tribunal should consider the public interest in the merger, related not to the US supermarket’s foreign ownership, but “Wal-Mart’s foreign procurement patterns”.  He said that to suggest the government view the merger on the basis of claimed savings for South African consumers without considering the impact of procurement strategy on the local economy was a “really a shortsighted and irresponsible view”.

Massmart controls a number of South African retailers including Makro, Builders Warehouse and Jumbo.

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