Shoprite did not offer the highest price for its proposed merger with Massmart. It offered to take the full perimeter and thus avoid job losses. Shoprite’s offer was below the book value of the assets being purchased, according to outgoing Massmart chief executive Mitchell Slape.
Slape said the full perimeter did not mean just the targeted stores. It included a meat plant and fresh produce packing facilities, which are internally focused on producing for the targeted stores as part of this perimeter.
According to Slape, the below-the-book value offer Shoprite made would result in a write-down for Massmart.
“Shoprite was so prepared to proceed to the next phase without knowing the impact of the civil unrest of the target business,” he said.
Massmart was negatively affected by the July civil unrest which took place in KwaZulu-Natal and Gauteng last year.
Slape was speaking at the Competition Tribunal hearing yesterday, on the third day of the hearing, relating to the proposed merger of Shoprite Supermarkets acquiring certain stores from Massmart Holdings.
Shoprite plans to acquire 56 retail supermarket stores and 43 retail liquor stores operated under the brand names Rhino Cash & Carry, Rhino Liquors, Cambridge Food, and Cambridge Food Liquor, 10 wholesale (Cash & Carry) stores, two wholesale liquor stores; and Massfresh, with two entities – a meat-processing plant facility and Fruitspot, comprising three processing facilities in Cape Town, Durban and Johannesburg.
The target businesses are active in the retail and wholesale trade of grocery, liquor, and associated items and are wholly owned and controlled by Massmart. Massmart, in turn, is controlled by Walmart.
Slape said Massmart was interested at the onset of this process in finding buyers that could take the full perimeter as the best approach to ensuring that jobs were protected and transferred as part of the sale of the business.
He said Spar’s offer was attractive from a value perspective, but it did not include the full perimeter.
“In fact, their offer was largely for the stores that best fit their circumstances in their portfolio and excluded the entirety of the Massfresh business and any responsibility for home office staff. In discussions with Spar, we shared with them that Massmart needed to find a deal for the full perimeter,” Slape said.
He said Spar confirmed to Massmart that they were unwilling to consider that and hesitant to take on the full perimeter.
Slape said with Pick n Pay, while their bid was for the full perimeter, it was materially behind in value, and that its due diligence requirements were unreasonable.
“Following the riots in July 2021, Pick n Pay informed us in writing that they were prepared to submit a higher bid for a reduced parcel of stores, not the full perimeter. They needed more time, but they did not specify how long that would take to assess the impact of the civil unrest on the target business. This was not acceptable to us, particularly about the construct of their offer,” he said.
Slape said Massmart did not invite Spar and Pick n Pay to phase two of the bidding process.
“Those discussions focused on Shoprite given the nature of their bid and the fact that it didn’t change during the process of the civil unrest,” he said.
According to Slape, several secondary purchasers also submitted an interest but when Massmart evaluated them, their ability to execute the transaction, particularly from an operational and a financial perspective, was highly suspect.
“They lacked operating experience, working capital resources, and they also lacked the ability to integrate a complex operation,” he said.
The proceedings adjourned and will resume on September 12.
BUSINESS REPORT