Wal-Mart, Massmart Urged to Help Local Suppliers

Date : 06/12/2012 @ 1:20PM
Source : Dow Jones News
Stock : Wal-Mart Stores, Inc. (WMT)
Quote : 76.89  0.74 (0.97%) @ 7:55PM

Wal-Mart, Massmart Urged to Help Local Suppliers

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-- Report recommends up to ZAR2 billion fund to aid suppliers believed at risk from cheap imports

-- Separate report from divided panel recommends focus on few specific sectors

JOHANNESBURG--The Wal-Mart Stores Inc. (WMT) and South African retailer Massmart Holdings Ltd. (MSM.JO) merged entity should pay more to support local suppliers, possibly up to 2 billion rand ($239.1 million), says a report produced by Nobel laureate Joseph Stiglitz.

To enhance local suppliers' capacity and job creation, the two companies should develop a fund that would spend between ZAR500 million to ZAR2 billion over the next five to 10 years, says the report, seen by Dow Jones Newswires and co-authored by Mr. Stiglitz and Genesis Analytics economist James Hodge.

Last year, South Africa's competition authorities approved Wal-Mart's $2.4 billion bid to buy a majority stake in Massmart. The deal closed in 2011 but three government bodies and a local union appealed the decision, arguing that not enough had been done to protect local manufacturers and suppliers, which they believed were at risk of closing down if Wal-Mart increased cheaper imports.

When competition authorities signed off on the Wal-Mart and Massmart merger last year they did so with a few caveats. The companies agreed not to cut any job for the first two years, honor union bargaining agreements for three years and invest ZAR100 million in a supply-chain training program to improve the competitiveness of local industry.

In March, the competition appeals court said there was "insufficient evidence" that the merger would harm public interests enough to overturn the approval but ordered a three-person panel to be formed with a representative selected by the merged parties, the government and union to put forward recommendations on how the fund should be run.

Over the weekend, the panel submitted its report, but in a sign of tension between the parties, the Massmart and Wal-Mart appointee to the committee, University of Cape Town professor Mike Morris, opted to write his own report due to disagreements on content.

Mr. Morris recommended a fund that would be focused on a few specific sectors with a large number of small to medium sized businesses that could benefit from the fund and provide niche products to the retailers. His report didn't reject the initial ZAR100 million rand figure as too small.

A spokesman for Massmart and Wal-Mart said the companies' lawyers are reviewing the report and will lodge a written response to the appeal court which will then take into account all the information before making a final decision.

The Stiglitz-Hodge report also noted with concern the recent story from the New York Times about Wal-Mart's activities in Mexico and said while it was outside their remit it "seems to demonstrate deficiencies in Wal-Mart's internal structures."

Write to Devon Maylie at devon.maylie@dowjones.com

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