24 Jun - 3 min read

Related party transaction between a wholly owned subsidiary of Walmart Inc and Massmart

Related party transaction between a wholly owned subsidiary of Walmart Inc and Massmart

Massmart Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1940/014066/06)
Share code: MSM
ISIN: ZAE000152617
(”Massmart” or the ”Company” or “Massmart Group”)

RELATED PARTY TRANSACTION BETWEEN A WHOLLY OWNED SUBSISDIARY OF
WALMART INC AND MASSMART

1.   Introduction

     In January 2020 Massmart announced a project to re-organise
     the Massmart Group into a leaner, more agile two business
     unit structure supported by shared Centres of Excellence.
     This effort resulted in the successful centralisation of
     previously autonomous support functions into shared group-
     wide Centres of Excellence in areas such as Real Estate,
     Supply Chain, Information Technology, Goods Not for Resale
     procurement and Human Resources.

     In the announcement published on SENS on 21 January 2021, we
     announced that Massmart had concluded a managed services
     agreement covering our financial transaction processing
     activities with Genpact (“MSA”), a leader in finance and
     accounting   transformation.   Genpact  manages   back-office
     operations for many Global Fortune 500 companies across
     several industries, including retail and consumer goods,
     which is its fastest growing business. 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 our trading banner home offices.


2.   Related party transaction with a wholly owned subsidiary of
     Walmart Inc. (“Walmart”)

     a.   Back ground, rationale and salient terms

          Massmart will incur transformational costs of USD16.2
          million 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
          (“Transformational    Costs”). Of  the  total
     Transformational Costs, USD13.36 million will be payable
     within the first two years of the contract.

     Walmart, through its wholly-owned Irish subsidiary,
     Newgrange Platinum Services, Ltd. (“NGPS”), has entered
     into a contract to assist Massmart in managing the
     resultant cashflow impact by paying upfront costs to
     Genpact and charging these in equal installments
     (interest free) over the 8-year term of the contract to
     Massmart ( “Genpact Agreement”). In terms of the Genpact
     Agreement, Genpact will bill NGPS.

     Consequently, Massmart has entered into a back-to-back
     agreement with NGPS reflecting these terms (“NGPS
     Agreement”). The net effect of this agreement will
     provide cash flow relief to Massmart of USD11.34 million
     over the first 2 years of the MSA. The NGPS Agreement is
     a related party transaction as it is between a Massmart
     subsidiary and a Walmart subsidiary (“Related Part
     Transaction”).

b.   Pro forma info

     The contractual value of the NGPS Agreement is USD16.2
     million which is made of the Transformational Costs. The
     contractual value 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
     Transformational Costs in equal instalments over the
     term of the contract.

c.   Fairness opinion

     In terms of paragraph 10.7 of the Listings Requirements,
     of the JSE Limited (“JSE”) (“JSE Listings Requirements”)
     the Related Party Transaction is categorised as a small
     related party transaction.

     Accordingly, the Board of Directors of Massmart (“Board”)
     is required to provide the JSE with written confirmation
     from an independent professional expert confirming that
     the terms of the Related Party Transaction are fair insofar
     as ordinary shareholders of Massmart (“Shareholders”) are
     concerned.
     In compliance with paragraph 10.7(b) of the JSE Listings
     Requirements, PWC Corporate Finance (Pty) Ltd ("PWC") was
     appointed by the Board as the independent professional
     expert. PWC has concluded that the Related Party
     Transaction is fair as the Shareholders of Massmart are
     concerned. A copy of the fairness opinion will be open
     for inspection at the Company’s head office (16 Peltier
     Drive Sunninghill), by sending an email request to
     sandile.lukhele@Massmart.co.za from the date of this
     announcement until 22 July 2021.


Johannesburg

24 June 2021

JSE Sponsor: J.P. Morgan Equities South Africa (Pty) Ltd

Date: 24-06-2021 09:00:00
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