Couche-Tard Carrefour Bid Challenges French Takeover Hurdles

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

Alimentation Couche-Tard Inc. proposed buying the French company for 20 euros a share, confirming an earlier Bloomberg report. That represents a roughly 29% premium to its closing price Tuesday. Terms are under discussion, but payment is expected to be largely in cash, the Quebec-based retailer said.

The bid 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.

Shares of Carrefour rose 13% in Paris on Wednesday, trading slightly below the offer price. Couche-Tard fell 10% in Toronto.

Couche-Tard Carrefour Bid Challenges French Takeover Hurdles

There are questions among analysts as to whether any deal would 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.

France will carefully examine the deal, given Carrefour’s historical roots in the country, the number of jobs involved and the turmoil in the retail industry, said a government official who cautioned that the administration has not been given details of the proposed tie-up.

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 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.

With a potential Carrefour purchase, 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 $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 $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 $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% stake in its China unit to local retailer Suning.com 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.

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