August 2022, Walmart and Massmart reached an agreement for Walmart to potentially make an offer to buy all the outstanding shares (47.6%) in Massmart that it did not already own for R62 in cash for each ordinary share.

November 2022, Walmart concluded a R6.4bn deal to secure full ownership of Massmart which owns Game, Makro, and Builder’s Warehouse. 

This article will seek to cover;

  1. turnaround plan,
  2. Walmart loan,
  3. Reorganising the Massmart,
  4. Sale of stores, and
  5. entrance into e-commerce. 

Massmart powered by Walmart, comprises two business units operating 408 stores, across 13 sub-Saharan countries. Through its widely-recognised retail and wholesale formats [including Builders Warehouse, Cambridge Food (some have been sold), Game, Jumbo Cash & Carry, Makro and Shield), it has leading shares in the general merchandise, liquor, home improvement and wholesale food markets. It has total Group annual sales of R84.9 billion.

Walmart paid R16.5 billion (R148/share) for a controlling stake (51%) in Massmart in 2011. Walmart’s stake has grown to 52.8% and was valued at +-R4.38bn early 2022.

Things have gone bad for Massmart in the last 10 years and Game stores were not spared.

Massmart has also signalled intentions to sell 15 of its 114 Game stores due to the damage caused by the July 2021 unrest and also announced that it will be disinvesting in 14 East and West African Game stores. Massmart owns 147 Game stores, with 114 of those located within South Africa.

Massmart has impelement certain actions to take the group back to its former glory.

Turnaround Plan

To arrest the downward spiral, Massmart came up with a Turnaround Plan. This plan included the closure of DionWired stores and the divested from underperforming Masscash stores. 

Massmart closed 23 DionWired stores. 

Massmart Group incurred total retrenchment costs of ~R132.5 million which is related to the closure of the 23 DionWired stores, the sale of 11 Masscash stores, the reorganisation of the Game store level operating model.

Walmart loan

Walmart (parent company) extended a loan of R4bn which was USD-denominated loan to Massmart (subsidiary). Walmart has recently agreed to replace R2bn of the R4bn loan by subscribing for a perpetual fixed rate unsecured note.

The fixed rate unsecured note issued by Massmart Holdings will have a perpetual tenure, and is treated as equity in terms of IFRS. The note bears interest at 7.25% initially, and includes an interest step up of 225bps on 31 December 2023. What makes things interesting is how the R4bn loan is recognized in Walmart’s AFS. Wal-Mart could convert the debt instrument into Massmart’s equity. Substance of the contract over its legal form prevails.

The remaining Walmart loan now has a 6-month tenure, which can be extended at the end of each tenure period. The balance of this loan after the subscription for the Perpetual Note above is $117m and all other terms remain materially unchanged.

For FY21, the Groups’ total interest-bearing borrowings and debt facilities, including bank overdrafts and lease liabilities, increased by R354.4 million. Average net debt increased by R1.2 billion compared to the prior year.

Reorganising the Massmart Group

In 2020, Massmart announced a project to re-organise the Massmart Group into a leaner, more agile two business unit structure supported by shared Centres. Massmart then concluded a managed services agreement covering its financial transaction processing activities with Genpact.

The services that Genpact will manage for Massmart include Accounts Payable, Accounts Receivable, and defined activities in Financial Control, Tax, Treasury and FP&A transaction processing in the Massmart head office and its trading banner home offices.

Massmart will incur transformational costs of $16.2m over the term of the MSA, including digital transformation, tools, process integration and change management costs, the majority of which is payable to Genpact in the first 2 years of the agreement. Of the $16.2m Transformational Costs, $13.36m will be payable within the first 2yrs of the contract. Walmart, through its wholly-owned Irish subsidiary, Newgrange Platinum Services has entered into a contract to assist Massmart in managing the resultant cashflow impact.

How will Walmart’s subsidiary Newgrange Platinum Services (NGPS) assist Massmart? It is paying upfront costs to Genpact and charging these in equal instalments (interest free) over the 8-year term of the contract to Massmart. In terms of the agreement, Genpact will bill NGPS.

Consequently, Massmart has entered into a back-to-back agreement with NGPS reflecting the terms of the NGPS Agreement. The net effect of this agreement will provide cash flow relief to Massmart of $11.34 million over the first 2 years of the MSA. The $16.2m is determined based on the actual expenses incurred by NGPS from Genpact with no markup applied to the expenses incurred. The impact of the NGPS contract is to smooth the cash flow impact of the $16.2m in equal instalments over the term of the contract.

Sale of stores

Early 2021, Massmart appointed Barclay’s to facilitate the disposal of Cambridge Food, Rhino and Massfresh (comprising The Fruitspot and a meat processing facility) assets. Devland Cash and Carry’s acquired 8 Masscash stores (Jumbo, Cambridge Food and Rhino stores.

20 August 2021, Shoprite announced that it had entered into a sale of business agreement with Massmart to acquire the following stores:

  • Cambridge Food business and Rhino Cash and Carry business consisting of 56 grocery stores in total (including 43 liquor stores),
  • Fruitspot and Massfresh Meat comprising 4 facilities and
  • 12 Masscash Cash and Carry stores.

Early May 2022, the South African Competition Commission has recommended that the Competition Tribunal approve Shoprite Supermarket’s R1.4bn proposed acquisition of the Cambridge Food, Rhino Cash and Carry, Massfresh and selected Masscash Cash and Carry assets from Massmart subject to competition and public interest conditions. The merger involves grocery, liquor stores, wholesale stores and Massfresh business.

Massmart’s entrance into e-commerce

Late 2021, Massmart acquired an 87.5% stake in on-demand multi-retailer marketplace, OneCart. Since then, the platform has experienced exponential Gross Merchandise Value (GMV) growth of over 200%.

Early 2021, Massmart acquired 100% of local last mile delivery firm, WumDrop, is providing an improved customer experience through its digital channels. Makro, (and other Massmart brands in the future), were expected to clip its 3 – 5-day delivery lead time promise to just 2 days, for deliveries within 30km from any store, as soon as the end of June. 

Delisting of Massmart. 

Processes are underway to delist Massmart from the JSE. Following this, Massmart will be a fully owned Walmart subsidiary.

Massmart really fell from grace. 

Walmart paid R148 a share for a 51% stake in Massmart in 2011 and is now offered R62 a pop.

Massmart has been on a downward spiral for a while now. For FY21, the total group sales decreased by 1.9% to R84.9bn. However, Massmart was still able to report a net loss of R2.2bn. Massmart had an impairment of over R1bn, of which R231m was linked to the July 2021 civil unrest and R507m linked to Game. Net interest expenses increased by 2.3% to R1.78bn whilst Massmart’s interest-bearing borrowings are R6.5bn.


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