A South African court cleared the way on Friday for the world’s top retailer Wal-Mart to take its first foothold in Africa by dismissing a government bid to set aside its $2.2 billion takeover of local chain Massmart.
The case is seen as a bellwether for foreign investment in South Africa, which is trying to attract major injections of cash into everything from railways to power plants.
“The arguments of the ministers do not justify the setting aside of the (competition) tribunal decision,” said Judge Dennis Davis, ruling that the merger will not be sent back to be reheard.
The court ruled against an application by three government ministers seeking to review and set aside the merger approval last May of Wal-Mart’s 16.5 billion rand (1.7-million euros) purchase of a 51 percent stake in Massmart.
However, it ordered that a study be done within three months to investigate how local small and medium-sized business could participate in Wal-Mart’s global supply chain and ensure they reap benefits from the merger.
“Massmart and Wal-Mart welcome the decision that has been handed down,” Massmart executive Brian Leroni told reporters after the ruling, saying the parties looked forward to developing local suppliers.
“This merger has now been endorsed by all three arms of the competition authorities,” he added.
The Competition Appeal Court of South Africa partly upheld an appeal of the deal from a trade union, putting in place conditions.
These include a two-year ban on job losses, ruling in favour of a union with the reinstatement of 503 retrenched employees, and the study by three experts into local business.
The merging parties have agreed to a 100-million-rand fund to develop local suppliers but the court found that there was not enough details on how this would work and if it would fulfil required protections for the public interest.
The study report will show “best means by which South African small and medium sized suppliers could participate in Wal-Mart’s global value chain and thereby ensure that benefits from this merger will flow to this important sector of the economy,” stated a summary of the ruling.
“The court will then be empowered to formulate the mandate and the conditions by which such a fund or similar proposal would operate.”
South Africa’s powerful trade unions have sharply criticised the deal, saying Wal-Mart’s entry would hurt local manufacturers by increasing imports.
The ministers of trade, economic development and agriculture feared that the merger will affect local suppliers and jobs through the US giant’s global buying power and wanted more measures to protect the local market.
But the court said lower prices will benefit consumers and could create jobs, concluding that the benefits of the merger outweighed the detrimental effects.
Massmart runs nine wholesale and retail chains with 288 stores in 14 African countries.