* Massmart declines to confirm deal, says keen on Kenya
* Growing middle-class fuelling retail chain growth
* Entry into Kenyan gives scope for regional growth
* Analyst warns Massmart likely to pay hefty premium
By James Macharia
NAIROBI, Aug 13 (Reuters) - Wal-Mart’s South African unit Massmart is in talks to take a majority stake in the Kenyan supermarket chain Naivas that would give the world’s largest retailer a foothold in east Africa’s biggest economy.
Strong economic growth in Africa is attracting global retailers such as Wal-Mart Stores Inc, which acquired Massmart in a $2.4 billion deal two years ago, and Kenya is expected to grow about 6 percent this year after 5 percent last year.
Massmart is expected to take a stake of 50 percent plus one share, said Naivas Chairman Simon Mukuha, adding that both sides had yet to reach agreement on the price.
Naivas has 28 stores, fewer than its rivals, Nakumatt and Uchumi Supermarkets, which has a market capitalisation of around $60 million and in May had 25 stores across East Africa with plans to open 13 more.
Mukuha said Naivas aims to open two more outlets by the end of the year.
Mukuha declined to give any financial details, including sales figures for Naivas, but rival Uchumi trades on a multiple of 11.6 times earnings, according to Thomson Reuters data.
Uchumi’s annual sales rose by just under a third in 2012.
Africa’s economic growth is creating a growing middle class and a whole new breed of consumers.
“They (Massmart) want to come in with a partner, someone who can show them how to navigate this market. On our part, we are looking for an investor to pump in fresh ideas, fresh blood,” Mukuha said.
Massmart declined to comment on the Naivas stake, but its chief executive Grant Pattison said in an email last week that the company had “met with several important players in that market, building relationships.”
But Nic Norman-Smith, chief investment officer of Lentus Asset Management in Johannesburg, cautioned that Massmart may have to pay a premium to get into Kenya, given the limited number of available retailers that would fit its business model.
“There is a lot of demand for these assets, I would be very surprised if they didn’t overpay. If the price that Wal-Mart paid for Massmart is anything to go by, they clearly have an appetite to grow at almost any cost,” he said.
In Johannesburg, Massmart Holdings said on Tuesday its first-half earnings rose by as much as 57 percent, lifted by favourable exchange rates.