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Analysis: A suitable suitor? Carrefour admirers must court the Elysee Palace

Stock MarketsJan 29, 2021 03:06AM ET
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4/4 © Reuters. FILE PHOTO: A Carrefour logo is seen on a Carrefour Hypermarket store in Antibes 2/4

By Gwénaëlle Barzic, Dominique Vidalon, Sarah White and Pamela Barbaglia

PARIS (Reuters) - So what now for Carrefour (PA:CARR), forbidden from wedding its wealthy Canadian admirer, just as it needs to renovate? Will fate find a more suitable suitor, perhaps closer to home?

The retailer's proposed marriage to Alimentation Couche-Tard of distant Quebec was always likely to raise the hackles of France, fiercely protective of a favoured private-sector child.

Indeed when Carrefour boss Alexandre Bompard first met Couche-Tard Chairman Alain Bouchard face to face, on Jan. 8 in Paris, he made it clear a deal would never fly without sweeteners for the French government, according to two people with knowledge of the meeting.

With the talks still hush-hush, Bompard flagged likely requirements, the sources said: guarantees to protect jobs, keeping the group's headquarters in France, retaining a local listing and several French seats on the combined group board.

"Carrefour knew that there was no way Paris would let it be diluted in a bigger Canadian company and its identity disappear," one of the people said.

The deal, worth close to $20 billion, was killed off days later by French ministers who said the food sector was of strategic national importance. They rejected the advances of a company that operates gas stations and convenience stores across North America but is virtually unknown in France.

It leaves Carrefour, France's No.2 supermarket group, without the extra firepower to galvanise a turnaround plan Bompard is halfway through delivering, at a time when shares are 30% below where they were when he took the helm in July 2017.

However, two financial sources familiar with Carrefour said the retailer expects a European bidder could elicit a friendlier response from France, and that this remained a possibility.

The sources cited Spain's Mercadona, Germany's Metro and Dutch player Ahold Delhaize among potential fits.

Clive Black, head of research at Shore Capital, said even a tie-up with Britain's Tesco (OTC:TSCDY) could work as long as it gave the French some of the guarantees they have sought.

Representatives at Mercadona and Metro were not immediately available for comment, and Ahold Delhaize declined to comment. Tesco said it would not comment on speculation.

One of the sources, speaking of Carrefour's thinking, said the prospects of such a deal were increased by political alignment among EU members, and France's support for creating European champions to better compete with U.S. online retailers.

"But with a Canadian counterpart, why bother?" the person added. "It was easy to just shut the door and move on."

Guarantees on the location of purchasing centres - ensuring some protection for French food suppliers - could also make a difference, one of the sources familiar with Carrefour said.

Carrefour makes about half its sales in France, though a third comes from other European locations, including Spain.

A merger with a French rival is seen as unlikely by industry experts because of the likelihood of operational overlap and associated job losses.


Bompard may still have a strong hand to play on Carrefour's strategic direction. The well-connected executive, known to have President Emmanuel Macron's ear, has the backing of Carrefour's top shareholders, two people familiar with their thinking said.

They include the Moulin Family, which owns department store chain Galeries Lafayette, Brazilian businessman Abilio dos Santos Diniz, and Groupe Arnault, the family holding of France's richest man and LVMH boss Bernard Arnault.

Union representatives, fearful Carrefour could wield the axe more easily under a foreign owner, even should some guarantees be given, say they are under no illusions that another deal could be on the horizon.

"It's been a cold shower for everyone," said Sylvain Mace of the CFDT union. "Employees have understood the message, that being sold off is an option. It's not Carrefour that ended the talks."

Yet the French government's willingness to intervene in Carrefour's plans could also weigh on any future price tag, making a deal less attractive, according to Black of Shore Capital.

"State-protected industries tend to lag in the end because they cannot attract the best talent or capital, not to say that Carrefour is wholly in this context," he said.


French officials make no apologies for their approach.

"Imagine if a foreign company wanted to buy the biggest employer in Germany, or Walmart (NYSE:WMT) in the United States, what would be the reaction of the German or U.S. governments?" French Finance Minister Bruno Le Maire told Les Echos newspaper.

The extra resources offered by Couche-Tard would nonetheless have boosted Carrefour's e-commerce roll-out, a priority as it looks to retain an edge over Amazon (NASDAQ:AMZN) on the groceries front. Bompard said in 2018 he would spend 2.8 billion euros ($3.4 billion) to expand the group's global digital business by 2022.

Couche-Tard had proposed to invest 3 billion euros over a five-year period. That would likely have targeted the online business, but could also have helped fund price cuts in the competitive French market, according to two sources close to the discussions between the companies.

A tie-up could also have accelerated the roll-out of smaller convenience stores - a format Bompard aims to focus on as the Carrefour's hypermarkets, which generate half of its French revenue, struggle.

About a quarter of the group's roughly 200 hypermarkets in France were loss-making even before the COVID-19 crisis pushed shoppers to visit neighbourhood stores more frequently, according to unions.

In 2019 comparable sales were down 2.1% at its French hypermarkets, contrasting with a 3.1% rise in revenue across the group, which reached 80.7 billion euros.

Carrefour reports 2020 earnings on Feb. 18.

Christian Nehme, head of retail in France for real estate agency Savills, said the Couche-Tard deal could have helped Carrefour push more into the convenience store market dominated by rival Casino Group.

"The Canadians are specialised in in-town small supermarkets with high margins," he added.

Analysis: A suitable suitor? Carrefour admirers must court the Elysee Palace

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