Walmarts acquisition of Massmart : a strategic financial analysis
ENGLISH ABSTRACT: On 27 September 2010, the much anticipated entry of Walmart to the South African retail sector was announced. Walmart Stores Incorporated publicised that they would make a non-binding offer of R148 per share for the entire number of Massmart Holding’s outstanding shares. The offer presented a premium of 19.2 percent and valued Massmart at R31 billion rand. Walmart later altered the offer to purchase 51 percent of the outstanding shares at the same offer price which Massmart consequently accepted. This concluded the largest investment by an American company, the tenth largest corporate transaction in South Africa and the fifth largest acquisition by Walmart. From a Massmart shareholders’ perspective, was it the correct decision to accept Walmart’s offer? Academic literature suggests that most mergers and acquisitions fail to live up to their expectations and ultimately fail to create shareholder value. Some of the most common reasons listed are the failure to determine the fair market value of an acquisition and engaging in mergers and acquisitions for the wrong reasons. Another common pitfall is that valuation methods in general do not link the company’s strategy to the valuation process, to assess the potential impact of the merger or acquisition on company performance. This case study based research report analyses the Walmart-Massmart acquisition to review Walmart’s offer price. The analysis links both companies’ business model and strategy to the valuation process, to determine the outcome on shareholder value within Massmart following the acquisition.