Carrefour’s Brazil Unit Climbs After Purchase of Makro Stores

(Bloomberg) -- Carrefour SA’s Brazil unit rallied as investors cheered the French retailer’s move to accelerate the expansion of its cash-and-carry business in Latin America’s largest economy.

Shares of Atacadao SA rose as much as 6.2% in Sao Paulo on Monday, the most in more than two months, after it agreed to buy 30 cash-and-carry stores and 14 gas stations operated by retail chain Makro Atacadista for 1.95 billion reais ($452 million).

Jefferies said the transaction should add 3% to Carrefour’s earnings by 2023, and Itau BBA sees it generating about 1 billion reais of value. Atacadao said the 30 stores posted gross sales of around 2.8 billion reais in 2019.

“Carrefour is acquiring only stores, not the full company, decreasing the risk that it will have to deal with the usual liabilities associated with M&A,” Itau analysts led by Thiago Macruz wrote in a report dated Feb. 16. “Second, all the stores Atacadao is acquiring are outside of Sao Paulo state, marginally reducing cannibalization risk, although we believe that risk cannot be entirely neglected.” Itau reiterated its outperform rating on Atacadao.

The deal lets Carrefour further benefit from the cash-and-carry business model, in which goods are sold, often in bulk, from a wholesale warehouse. The unit represents more than half the group’s revenue in the country.

Atacadao, which releases its fourth-quarter earnings on Thursday, has four buy-equivalent ratings, 11 holds and no sells, according to data compiled by Bloomberg. The stock was the best performer on Brazil’s benchmark Ibovespa index as of 11:20 a.m. local time.

What Bloomberg Intelligence says

“Carrefour’s purchase of 30 Makro stores in Brazil should reinforce its lead in the hybrid cash & carry sector, especially if it can bring sales productivity in the acquired stores close to that of its Atacadao units, which is around double that of the Makro units. We think the inclusion of 22 freeholds makes the 420 million-euro purchase price (70% of sales) reasonable”

-- Charles Allen, BI retail analyst

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--With assistance from Fabiola Moura and Phil Serafino.

To contact the reporter on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Jessica Brice, Matthew Bristow

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