Wal-Mart Stores Inc., the world’s largest retailer, said it will seek to buy 51 percent of South Africa’s Massmart Holdings Ltd., stopping short of full ownership to gain support from shareholders and the government.

Wal-Mart scaled back a plan to acquire all of Johannesburg- based Massmart after some “emerging-market funds” indicated opposition to the 148 rand-a-share offer, Guy Hayward, Massmart chief financial officer, said on a conference call today.

“The drive for a partial offer, that left Massmart listed, came mostly from shareholders,” Hayward said. Offshore investors, holding as much as 72 percent of Massmart, said they “would be sad see it leave investment boards.”

The partial offer is worth 16.5 billion rand ($2.3 billion) and values the South African retailer at about 32 billion rand. The price is the same as when the proposed transaction was announced on Sept. 27. Wal-Mart is seeking to expand internationally to make up for slowing growth in the U.S., where same-store sales have fallen for six consecutive quarters.

Restricting the transaction to a majority stake “allows shareholders to remain invested and share in the upside” of Massmart’s growth and expansion, Hayward said. The partial offer is viewed by Wal-Mart as “positive” rather than as a “compromise,” Andy Bond, vice president of Europe, Middle East and Africa, said in a presentation in Johannesburg.

Government Discussions

Wal-Mart has a similar ownership structure in Mexico, where it owns 68 percent of Wal-Mart de Mexico SAB. The Bentonville, Arkansas-based retailer operated more than 4,000 stores in 14 countries outside the U.S. through April, with sales abroad topping more than $100 billion in the most recent fiscal year.

Discussions with South Africa’s central bank, Treasury and other government departments have been “positive,” Massmart Chief Executive Officer Grant Pattison said.

The government asked whether it would be possible to keep Massmart listed, while not indicating any opposition to a transaction, the CEO said. The Johannesburg Stock Exchange also indicated a preference for the company to remain listed.

Wal-Mart’s plan has met with opposition from labor unions. The South African Commercial, Catering and Allied Workers’ Union started an anti-Wal-Mart coalition on Nov. 4, saying the U.S. retailer “will destroy jobs,” harm local manufacturing and weaken unions in Massmart’s shops.

Wal-Mart will honor all existing labor agreements, Pattison said, adding that Massmart has met with SACCAWU.

Sub-Saharan Expansion

The acquisition is the second biggest Wal-Mart has made, Bond said in an interview. The largest was the $11 billion takeover of the U.K.’s Asda in 1999. Wal-Mart plans to let Massmart lead its expansion in the sub-Saharan region, he said.

“What we are not going to do is to manage the rest of sub- Saharan Africa from the U.K. or Bentonville or whatever,” Bond said. “The hub of that strategy will still come from” Hayward and Pattison, he said. “We will support them in doing that.”

Massmart rose 60 rand, or 0.4 percent, to 142.30 rand as of 3:40 p.m. in Johannesburg trading.

Wal-Mart has “irrevocable” support for its offer from shareholders representing 35 percent of Massmart, the companies said in a statement today. Another 15 percent of investors have offered “non-binding” support to the bid.

The offer needs approval from at least 75 percent of Massmart investors, according to the statement. Wal-Mart will seek a waiver to make a mandatory offer from South Africa’s regulators. Under South African law, a mandatory offer is triggered when a shareholder breaches a 35 percent threshold.

Bloomberg