Thread by @MaanoMadima

Massmart intends to sell 15 of its 114 Game stores due to the damage caused by the July 2021 unrest.

The July protests, like Covid-19 are often used as a get-out-of-jail-free card.

Game has been on the ropes for a while now.

Massmart impaired Game by R570m.

Walmart paid ~R16.5bn (R148/share) for a controlling stake (51%)in Massmart in 2011.

The 51% is now valued at ~R6.5bn.

Massmart is at ~R57/share.

Things have went bad for Massmart in the last 10 years and Game stores were not spared.

To arrest the downward spiral, Massmart came up with a Turnaround Plan.

This plan included the closure of DionWired stores and the divested from underperforming Masscash stores.

Massmart closed 23 DionWired stores.

Early 2021, Massmart appointed Barclay's to facilitate the disposal of Cambridge Food, Rhino and Massfresh (comprising The Fruitspot and a meat processing facility) assets.

Devland Cash and Carry's acquired 8 Masscash stores (Jumbo, Cambridge Food and Rhino stores.

Devland Cash and Carry's acquired 8 Masscash stores.

Masscash owns Jumbo, Cambridge Food and Rhino stores.

https://twitter.com/MaanoMadima/status/1362285378288443392?t=MSnkD44X7LbQws3FYBQPMw&s=19

Shoprite entered into a sale of business agreement with Massmart to acquire:

Cambridge Food business and Rhino Cash and Carry business consisting of 56 grocery stores and 43 liquor stores

Fruitspot and 4 Massfresh Meat

12 Masscash Cash and Carry stores

https://twitter.com/MaanoMadima/status/1428723159243673605?t=P0LuQ__BTSEC35F8vfLPvg&s=19

Massmart Group incurred total retrenchment costs of ~R132.5 million which is related to the closure of the 23 DionWired stores, the sale of 11 Masscash stores, the reorganisation of
the Game store level operating model.

Massmart then announced that it will be deinvesting in 14 East and West African Game stores. No surprises really. South African companies always catch hands offshore.

Massmart owns 147 Game stores, with 114 of those located within South Africa.

https://twitter.com/MaanoMadima/status/1432246363245490176?t=P0LuQ__BTSEC35F8vfLPvg&s=19

How did the Game stores perform in the last 48 weeks?

Total sales of R13.6bn for the period were 8.4% lower than the same period in 2020

Total South African store sales were 7.1% lower.

Total sales of Game stores outside SA were R2.6bn, 13.6% lower than in 2020.

Massmart has been been struggling to make something out of Game.

Massmart recently introduced apparel in 93 Game stores and exited Fresh & Frozen in 51 stores.

Closure of DionWired stores and sale of business units led to a R700m improvement in Profit Before Interest and Tax as follows;

DionWired: R100m

Sale of 11 Cambridge and C&C Stores: R60m

Divesture of Cambridge, Rhino and Massfresh: R500m

14 Game West and East Africa R103m.

The problems at Massmart were so big that Wal-Mart intervened.

Walmart (parent company) extended a loan of R4bn to Massmart (subsidiary).

Walmart has recently agreed to replace R2bn of the R4bn loan
by subscribing for a perpetual fixed rate unsecured note.

The fixed rate unsecured note issued by Massmart Holdings,
will have a perpetual tenure, and is treated as equity in terms of IFRS. The note bears interest at 7.25%
initially, and includes an interest step up of 225bps on 31 December 2023.

What makes things interesting is how the R4bn loan is recognized in Wal-Mart's AFS.

Wal-Mart could convert the debt instrument into Massmart’s equity.

Substance of the contract over its legal form prevails.

The remaining Walmart loan now has a 6-month tenure, which can be extended at the end of each tenure
period. The balance of this loan after the subscription for the Perpetual Note above is $117m and all other terms remain materially unchanged.

In 2020, Massmart announced a project to re-organise the Massmart Group into a leaner, more agile two business unit structure supported by shared Centres

Massmart then concluded a managed services agreement covering its financial transaction processing activities with Genpact

The services that Genpact will manage for Massmart include Accounts Payable, Accounts Receivable, and defined activities in Financial Control, Tax, Treasury and FP&A transaction processing in the
Massmart head office and its trading banner home offices.

Massmart will incur transformational costs of $16.2m over the term of the MSA, including digital transformation, tools, process integration and change management costs, the majority of which is payable to Genpact in the first 2 years of the agreement.

Of the $16.2m Transformational Costs, $13.36m will be payable within the first 2yrs of the contract.

Walmart, through its wholly-owned Irish subsidiary, Newgrange Platinum Services has entered into a contract to assist Massmart in managing the resultant cashflow impact.

How will Wal-Mart's subsidiary Newgrange Platinum Services (NGPS) assist Massmart?

It is paying upfront costs to
Genpact and charging these in equal installments (interest free) over the 8-year term of the contract to Massmart.

In terms of the agreement, Genpact will bill NGPS.

Consequently, Massmart has entered into a back-to-back
agreement with NGPS reflecting the terms of the NGPS Agreement.

The net effect of this agreement will
provide cash flow relief to Massmart of $11.34 million over the first 2 years of the MSA.

The $16.2m is determined based on the actual expenses incurred by NGPS from Genpact with no markup
applied to the expenses incurred.

The impact of the NGPS contract is to smooth the cash flow impact of the $16.2m in equal instalments over the term of the contract.

The July protest were devastating to a lot of companies, Massmart included. Massmart states that R650m of the R2.5bn lost due to the protests won't be recovered from insurers.

The closure of the 15 Game stores was bound to happen sooner rather than later