Wal-Mart goes on offensive in bid to buy key South African chain

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Facing delays from regulators and powerful opposition from trade unions, Wal-Mart Stores Inc. is launching a publicity campaign to promote the benefits of its controversial takeover of a major South African retail chain.

The campaign, featuring a slick website with videos and reports from around the world, argues that Wal-Mart will create jobs and reduce prices in the South African retail sector.

But the campaign is also a sign that Wal-Mart is increasingly worried by the mounting obstacles in its first venture into the African continent.

Wal-Mart plans to spend $2.3-billion (U.S.) to purchase 51 per cent of Massmart Holdings Inc., the third-biggest retail chain in South Africa, which controls nearly 290 stores in South Africa and 11 other African countries.

Massmart shareholders have approved the deal, and analysts had expected it to gain government approval earlier this year. But instead the South Africa Competition Tribunal delayed its approval, allowing more time for opponents to mobilize their forces.

A week of hearings by the tribunal began Monday, with Massmart chief executive Grant Pattison facing a grilling from union lawyers. Final arguments are scheduled for next week.

The acquisition is crucial to Wal-Mart's ambitions of entering the fast-growing African market, seen as an emerging frontier for the consumer sector. A new study this month by the African Development Bank concluded there are 313-million middle-class consumers in Africa - up by more than 60 per cent over the past decade, putting Africa into the same league as China or India in its consumer growth.

South Africa, the most affluent country in sub-Saharan Africa, is a logical gateway for the African market. But its business climate is heavily influenced by its powerful unions, rigid labour laws and pro-union governments. Wal-Mart's anti-union reputation has sparked anger in South Africa, with unions threatening a strike against the retailer if the deal goes ahead.

Those factors have now caught up to Wal-Mart, delaying an approval process that was expected to be completed by now. Most analysts, however, still expect the deal to win government approval eventually.

Last week, South African Trade and Industry Minister Rob Davies said he wants Wal-Mart to make "concrete commitments" to protect jobs. "We want to ensure that this investment … does not have some of the potential negative effects, in terms of job losses in particular," he said.

Three government departments have commissioned an economic study, presented to the Competition Tribunal Monday, which warns that South Africa could lose as many as 4,000 jobs if the acquisition allows Massmart to shift just 1 per cent of its procurement from South African suppliers to foreign suppliers.

"There is little doubt in the mind of the business people involved in this transaction that imports will increase," said the study by Genesis Analytics, a consultancy.

"This is because the unique global purchasing power of the world's largest retailer will result in a reduction in the price of imported products…. The sheer size of Massmart in domestic retail means that the impact on domestic manufacturing and assembly will be substantive."

The study also warns that the Wal-Mart takeover could lead to an erosion of working conditions for Massmart employees. And it questions whether any cost reductions from the acquisition would lead to price savings for consumers.

Mr. Pattison, the Massmart chief executive, countered that he expects the deal to help Massmart to boost its sales by more than 20 per cent in the next few years as a result of expanded retail trading space.

The predictions of job losses and eroded working conditions were speculative, he said in a statement to the tribunal Monday. "Wal-Mart will not bring about a massive change to the manner in which Massmart procures products. ... Massmart is already an efficient procurer of products and Wal-Mart's abilities in this regard will give rise to benefits (if any) only at the margin," Mr. Pattison said.

He said he is proud of South Africa's labour laws and justice system. "I can see no great opportunity, under the watchful eye of these institutions, for the wanton and sustained abuse of human rights by an employer, whether in the context of labour relations or otherwise."