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Jan 13, 2021

Couche-Tard's US$20B Carrefour bid could face hurdles in France

No surprise that Alimentation Couche-Tard bid on Carrefour receiving political scrutiny: Analyst


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​A Canadian convenience-store operator is daring to go where foreign buyers often fail, weighing a US$20 billion bid for French retailer Carrefour SA.

Alimentation Couche-Tard Inc.’s possible offer faces a number of challenges, not least France’s sometimes frosty reaction to takeovers of its blue-chip companies. Carrefour is the country’s largest private employer, making the approach potentially sensitive at a time when the COVID crisis has thrust jobs to the top of the political agenda.

Quebec-based Couche-Tard’s initial proposal values the French company at 20 euros a share, people with knowledge of the matter said. That would represent a roughly 29 per cent premium to its closing price Tuesday, when both companies confirmed a Bloomberg report on the talks.

Shares of Carrefour rose 14 per cent in Paris on Wednesday, trading shy of 18 euros.

The discount to the possible offer price reflects questions among analysts as to whether the deal is likely to go through or makes strategic sense. While the creation of a potential trans-Atlantic retail giant would give Carrefour a well-heeled partner for a much-needed restructuring, a combination might not yield substantial cost savings.

“We are a little blindsided,” Jefferies analyst James Grzinic wrote in a note. “The format and geographic overlap between the two is virtually non-existent.”

Although Carrefour’s weak share price -- it trades at a significant discount to European peers -- makes it an attractive target, the Canadian company faces several hurdles to its potential bid. Carrefour, which has about 320,000 employees globally, generates about half its sales from France, where foreign takeovers have in the past been blocked by the government.

In 2005, French politicians frowned on talk of an approach from PepsiCo Inc. to Danone SA, stopping it dead in the water. More recently, deals such as General Electric Co.’s acquisition of Alstom SA’s power business were cleared with stringent conditions.

Competitive Market

France is also one of Europe’s most competitive food retail markets, dominated by closely held players with fewer constraints than listed companies.

A pioneer of the hypermarket format, Carrefour lost ground in recent years to Leclerc SA and German discounters in France, and is in the midst of a turnaround plan initiated by Chief Executive Officer Alexandre Bompard. The company’s key investors include Bernard Arnault, the billionaire chairman of luxury giant LVMH.

For Couche-Tard, which has built an empire by methodically acquiring smaller rivals, first at home in Canada before entering the U.S. in 2001 and Europe in 2012, the potential Carrefour bid might be an “opportunistic approach,” UBS analysts said in a note. The company’s focus lately had been on the U.S. and Asia-Pacific regions, where it tried to buy Caltex Australia Ltd. before deciding against a revised offer during the pandemic.

Couche-Tard slipped 2.2 per cent after the initial Bloomberg report, closing at $41.31 in Toronto on Tuesday and valuing the company at almost $46 billion.

With a potential Carrefour bid, Couche-Tard, would get more than 2,800 supermarkets in Europe and 703 larger-format hypermarkets, and in Latin America, where it has stores in Argentina and Brazil.

International Deals

Couche-Tard, which started from a single store in a Montreal suburb in 1980, has a no-frills reputation, with top management known for visiting scores of outlets before making acquisitions to spot the weaknesses. It agreed in 2016 to buy U.S. gas-station operator CST Brands Inc. for around US$4 billion, and gained a foothold in Scandinavia and the Baltic region through its 2012 purchase of Statoil Fuel & Retail ASA.

Last year, it was among potential suitors competing to acquire U.S. gas station operator Speedway, which was eventually sold to Seven & i Holdings Co. for US$21 billion.

Couche-Tard has a network of more than 9,000 convenience stores in North America, most of which also offer fuel retail, according to its website. It also had about 2,700 locations in Europe as of October last year.

Any transaction would add to the US$182 billion of deals announced in the retail industry over the past 12 months, according to data compiled by Bloomberg. Convenience-store operators have been expanding into the supermarket industry, including in the U.K., where TDR Capital teamed up with the gas-station entrepreneurs behind EG Group in October to acquire a majority stake in grocer Asda from Walmart Inc.

Cost Cuts

Carrefour has sought to move into other regions, with forays into overseas markets such as Latin America and China only producing mixed results. Carrefour two years ago sold an 80 per cent stake in its China unit to local retailer Co. It had about 5.2 billion euros in net financial debt as of June last year, down from almost 6 billion euros a year earlier, partly due to proceeds from the China deal.

Under Bompard, Carrefour has cut costs by scaling back the company’s giant stores, which sell everything from produce to clothing and housewares, while expanding in e-commerce and organic food.

In 2018, Carrefour struck a purchasing alliance with the U.K.’s Tesco Plc to increase their clout with suppliers.

Carrefour has held up fairly well during the pandemic. It posted its strongest revenue growth in at least two decades during the third quarter, as an increase in the number of people working from home boosted demand for groceries.

--With assistance from Ben Scent and Albertina Torsoli.