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Wal-Mart may scale back bid, keep Massmart listed

JOHANNESBURG/CHICAGO (Reuters) - Wal-Mart Stores Inc WMT.N, the world's biggest retailer, may scale back its $4 billion takeover bid for Massmart MSMJ.J and buy a more than 50 percent stake instead, a move that could keep the South African firm listed in Johannesburg.

A woman walks past a Makro branch of the South African retailer Massmart in Cape Town, September 30, 2010. REUTERS/Mike Hutchings

The change follows consultations with “major Massmart shareholders and key South African stakeholders,” Massmart said in a statement on Thursday, which did not give details on the discussions Wal-Mart has had.

A reduced stake would still make Wal-Mart the first major international retailer in South Africa. The company called Massmart, the country’s third-largest retailer, a “compelling growth opportunity” that represents a solid platform for African expansion.

Wal-Mart spokesman Kevin Gardner said due diligence was progressing “very satisfactorily.”

A revised bid could reflect dissatisfaction from some Massmart shareholders at the proposed takeover, given the immense potential for growth in Africa, where the population is expected to reach 2 billion by 2050.

“I think what (Massmart shareholders) are saying is: If this deal is so good for Wal-Mart, why should we be selling?” said Syd Vianello, an analyst at Nedcor Securities. That resistance could force Wal-Mart into buying only a partial stake, allowing Massmart shareholders to keep their exposure to the company, he said.

Wal-Mart shares fell 7 cents to $53.80 on the New York Stock Exchange at mid-afternoon. Massmart initially fell more than 2 percent on the news before paring losses to 0.5 percent at 138.01 rand.

Wal-Mart’s offer price was still 148 rand per share, Massmart said.

The reference to Wal-Mart’s discussions with key South African stakeholders could also signal some local resistance to having Massmart taken over by a company with a reputation for making things tough on smaller competitors, analysts said.

South Africa's government last year scuppered a $24 billion tie-up between local telecom MTN Group MTNJ.J and Bharti Airtel BRTI.BO, due to concern that MTN could lose its national character.

In that deal, listing was also key, as South Africa had pushed for a dual-listed company, something Indian law does not allow.

Like MTN, Massmart’s top shareholder is South Africa’s government pension fund, the Public Investment Corporation (PIC), which holds a little over 9 percent in the retailer.

No one was immediately available for comment at the PIC.

TOO MUCH, TOO SOON?

Doug McMillon, Wal-Mart’s international chief, told analysts in October that the opportunity to enter sub-Saharan Africa, through Massmart, came up sooner than he had anticipated.

If Wal-Mart scaled back its move into the region to the cost of a partial stake, that could please Wal-Mart shareholders who want the company to devote more resources to fix sales at its U.S. stores first.

“It’s clear that there are a lot of problems here (in the United States) that need to be addressed, beyond the holiday season, Wall Street Strategies analyst Brian Sozzi said.

Buying a partial stake would also let Wal-Mart learn about the market.

“In terms of Africa, I think it’s still uncharted territory for the big, international retailers. Acquiring a stake rather than buying Massmart outright could be a less risky and more successful strategy for them,” said Natalie Berg, an analyst at industry research firm Planet Retail in London.

Wal-Mart also has experience entering new markets via partial stakes in local companies. It took a minority stake in Japan’s Seiyu earlier in the decade and gradually increased that, eventually making the Japanese company a wholly owned unit.

“Wal-Mart and Massmart have held initial meetings with all major stakeholders and have constructive engagements with them,” Massmart CEO Grant Pattison said in an e-mailed statement.

The announcement that Massmart may remain listed, shows talks with Wal-Mart are “progressing positively,” he said.

Wal-Mart's intention to scale back its bid comes two weeks after HSBC HSBA.L pulled out of talks to buy a majority stake in South Africa's Nedbank NEDJ.J.

Additional reporting by Gugulakhe Lourie in Johannesburg; Editing by Michael Shields, Jon Loades-Carter and Richard Chang

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