Tuesday, December 14, 2010

Why Wal-Mart Went Shopping in Africa

Newly renovated exterior of the Walmart in Wes...Image via Wikipedia
Wal-Mart, the world's biggest retailer, made a $4.6 billion offer on September 27th to acquire the South African retail chain, Massmart Holdings. If it goes through, the acquisition will represent the American retailer's biggest acquisition in an emerging market and the first by a global retail chain in South Africa. 

The acquisition won't come cheap, though; the price offered works out to a premium of 26 times Massmart's earnings. Does that make sense? We were surprised to see Wal-Mart add another company and country to its portfolio. Our recent, in-progress research shows that most retailers find it tough to use global growth to boost sales and grow profits. A look at Wal-Mart's previous efforts at global expansion provides good context for this latest foray.

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