Wal-Mart is in talks to buy South Africa’s Massmart, a $4 billion deal that would give the U.S. retailer a big presence in fast-growing Africa and boost its emerging markets strategy.

The world’s largest retailer has been hit by weakness in the United States where low-income shoppers are particularly vulnerable to unemployment and higher gasoline prices. It has responded by focusing on cost cuts and international growth.

Buying Massmart, South Africa’s third-largest listed retailer by value, would give Wal-Mart a considerable network in Africa’s biggest economy and a foothold in 13 other countries in sub-Saharan Africa.

“Massmart is a very good fit with their business,” said Bryan Roberts, global research director at industry research firm Planet Retail in London.

Wal-Mart has made a non-binding proposal of 148 rand per Massmart share, valuing it at around 30 billion rand ($4.1 billion), a premium of nearly 10 percent over Thursday’s close of 134.75 rand.

Massmart said it has granted the U.S. firm an exclusivity period and there is no certainty of a formal offer. But Massmart’s share price jumped 11 percent to 150 rand, above the value of the proposed offer.

Wal-Mart’s shares fell 0.4 percent to $53.85 and some analysts said the acquisition might not be the best use of Wal-Mart’s cash.

“Wal-Mart should be allocating its capital first and foremost to developing U.S. urban stores and then returning cash to shareholders,” Wall Street Strategies analyst Brian Sozzi said in a note to clients.

Wal-Mart would become the first major international retailer to enter South Africa, but others could soon follow by targeting one of Massmart’s local competitors, Roberts said.

“There’s no shortage of good businesses that could be acquisition targets — Shoprite, Woolworths and the like.”

Home to some of the world’s fastest growing markets, Africa also boasts an emerging middle class and roughly 1 billion consumers, making it an increasingly attractive target for overseas investors.

The deal would be Wal-Mart’s biggest acquisition since it bought British supermarket operator Asda in 1999.

The bid values Massmart at 26.3 times its 12-month adjusted earnings per share, according to Thomson Reuters data. That compares to 21.5 times for Shoprite and 15.5 times for Woolworths.

A deal is also likely to boost South Africa’s rand which would benefit from an inflow of currency. The rand hit a 2-1/2 year high of 6.9776 against the dollar.

VOTE OF CONFIDENCE

Massmart sells general merchandise, electronics and food via a low-margin, high-volume model. It runs nearly 290 stores and nine different retail and wholesale chains.

It has also been one of the most aggressive of South Africa’s retailers in expanding into the continent. The company has 24 stores on the continent outside of South Africa, including Nigeria, Africa’s most populous nation.

Revenue totalled 47.6 billion rand in the year to end-June, having grown more than fourfold in 10 years. Operations outside of South Africa now account for about 8 percent of its revenue.

Wal-Mart’s proposal is the third bid by a big overseas firm for a South African company in recent months.

“It’s a big vote of confidence for the South African retail economy and for South Africa,” said Syd Vianello, an analyst at Nedcor Securities.

HSBC is in talks to buy up to 70 percent of Nedbank, South Africa’s fourth-largest lender, while Japan’s Nippon Telegraph and Telephone Corp agreed in July to buy IT firm Dimension Data

for $3.2 billion.

By joining forces with Wal-Mart, Massmart could put more pressure on its rivals, said Nedcor’s Vianello.

“It also has lots and lots of pricing and competition implications for the South African retail industry. Wal-Mart is the world’s largest retailer, it can source products cheaper than anyone else in the world.”

Both Massmart and Shoprite had long been seen as potential targets for Wal-Mart, which has over 8,600 retail units around the world but no material presence in Africa.

Wal-Mart has been focusing much of its expansion overseas, where last year sales passed $100 billion for the first time. The company’s international business now accounts for a quarter of its sales.

Massmart shares have risen more than 50 percent this year, compared to a rise of more than 36 percent in the South African retailers index and a little over 2 percent in the broader market.

Deutsche Bank and Goldman Sachs are advising Massmart.