(WMT) Walmart to Create Jobs in Africa

Following the takeover of South Africa-based retailer Massmart Holdings Ltd., the retail giant Wal-Mart Stores Inc. (WMT) has announced to create 15,000 jobs in South Africa within the next five years.

Besides, Walmart will expand its procurement of food and consumer goods from local suppliers by an additional $8.74 billion (60 billion rand) after its tie-up with Massmart. Additionally, Walmart will open new stores over that period.

Walmart acquired 51% stake of Massmart for $2.4 billion (16.5 billion rand) on June 20 for gaining  access to 50 million South African consumers. Through this deal, Massmart will also get the benefit to leverage Walmart’s global expertise in working directly with the local farmers for encouraging safe and high-quality cultivation.

In another news flow, Walmart has signed an agreement with its competitor Target Corp. (TGT), wherein the latter will transfer leasehold interests in up to 39 sites in Canada to the company. Walmart has been operating 325 stores in Canada.

Although the financial terms remain undisclosed, Target has planned to transfer the leasehold rights for 39 Canadian store sites, which are among the up to 220 locations in Canada that the company is buying from Zellers Inc. in a $1.84 billion deal.

Last month, Target signed leases for an initial group of 105 sites, the majority of which will become Target stores. In addition, Target announced the selection of a second set of sites in the fall and expects to open between 100 and 150 stores in Canada starting in 2013.

Following the deal, the rating agency Fitch Ratings decided to downgrade Target’s long-term issuer default rating to A- from A and its short-term rating from F1 to F2.

According to Fitch, Target’s comparable store sales have slowed and its financial leverage (adjusted debt/EBITDAR) is likely to shoot up owing to major buybacks and remodeling of Canadian stores that it is planning to acquire.

Target has bought back $2.5 billion worth of shares in 2010 and is planning to buy back $1.5 billion to $2 billion in 2011. In additon, Target’s leverage is expected to hike to over 2.0 times in 2011-2013, above Fitch’s prior expectations of 1.6 to 1.8 times.

Overall, Walmart’s buy out of Massmart was done from a purely product and sales perspective. However, some issues cropped up from the authorities of South African government departments fearing that Walmart’s global supply network would lead to job cuts, unfavorable conditions of employment and hurt local procurement.

However, Walmart readily promised to open new stores and expressed its ambition to grow its food business by over 50% in five years. The company also disclosed tempting plans of carrying out a “substantial” program to train and develop thousands of local farmers, bringing into light its corporate social responsibility with black economic empowerment.

Currently, we maintain a Neutral rating on the stock.  Further, Walmart holds a Zacks #3 Rank, which translates into a short-term Hold rating.

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