Walmart-Massmart likely to oppose report

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Walmart and Massmart were likely to appeal any requirement that they put more than R250 million into a “supplier development fund”, a leading competition analyst said yesterday.

The analyst was reacting to what he described as the “outrageous” recommendation that the fund should be in the “range of R500m to R2 billion over a period of five to 10 years” contained in the expert report prepared on behalf of three government departments and the SA Commercial, Catering and Allied Workers’ Union (Saccawu).

The report, authored by Joseph Stiglitz and James Hodge, stated that a fund of this size would be needed if “it were to materially address the concerns of the court and provide sufficient incentives to Massmart to implement a serious programme to empower local suppliers”.

While a R2bn fund over 10 years would be minimal in terms of Walmart’s annual turnover, it would represent a 12.5 percent “tax” on the R16bn merger, which was first announced in September 2010 and implemented in May last year.

A second “expert” report issued by Michael Morris, the third member of the expert panel, who had been appointed by Walmart-Massmart, adopted a more cautious approach. He did not specify the size of the fund but cautioned against a large fund and provided details about a variety of supply chain structures that could be used. The two reports were prepared in terms of a ruling handed down by the Competition Appeal Court (CAC) last March.

Although there are some areas of agreement between the two reports, they are fundamentally different with Stiglitz and Hodge’s report taking a broad-brush expansive approach to the challenges presented by Walmart’s entry into South Africa and Morris pursuing a more detailed analysis of how the challenges should be addressed. Significantly, neither of the two reports appear to have detailed the precise harm that might result from the merger.

Yesterday Walmart-Massmart was not prepared to comment on the recommendations made in the Stiglitz-Hodge report. In a statement it noted that its legal team was “reviewing the findings and will respond via an affidavit, within the 30-day time frame contained in the CAC ruling of March 9”.

The Economic Development Department, which is leading the process on behalf of the three government departments, was also not prepared to comment on the reports issued by the expert panel.

Business Report was unable to get comment from Saccawu.

Morris cautioned against pumping large sums of money into a fund without the necessary management and specialist capacity. “Throwing large amounts of money at a problem seldom solves it… When too much money is floating around under these conditions, the chances of corruption and waste increases enormously.

“A smaller but highly focused and well managed fund is likely to have much greater long-term impact than a large, unfocused, over-resourced, and over-managed programme.”

The gap between the two reports and their recommendations means that the CAC now faces a major challenge in its determination of the best way forward for this controversial transaction.


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