Alimentation Couche-Tard, the Canadian service store group that owns the Circle K Chain is considering a takeover of France’s Carrefour.
The Couche-Tard – Carrefour merger would result in a giant retail chain worth more than $50 billion. The acquisition talks are at an early stage, according to both the companies. Couche-Tard said Tuesday it has started “exploratory discussions” on a friendly deal with Carrefour.
Couche-Tard’s proposal values the French chain at about 20 euros per share. That would represent a roughly 29 percent premium to its Tuesday closing price and value the firm at about 16.4 billion euros (US$20 billion), according to Bloomberg.
Shares in Carrefour were up almost 14 percent in morning trading in Paris on Wednesday, making it the biggest gainer on the blue-chip CAC 40 index.
The deal would result in the Quebec-based Couche-Tard getting a further foothold in both Europe and Latin America.
The addition of Carrefour’s business would diversify Couche-Tard’s convenience store business by adding Carrefour’s portfolio of large-format supermarkets. The French grocer has a presence in suburban areas, and it also has smaller stores spread across city areas.
A certain lack of meaningful synergies
Analysts do not see any revenue advantage for Couche-Tard as it operates in a different retail market than Carrefour. “Ultimately the lack of meaningful synergies would be at odds with the need . . . [for] a suitable control premium being paid to Carrefour’s shareholders,” James Grzinic, analyst at Jefferies, wrote in a note.
France is known for its strong workers’ unions and rights. There is a risk that a foreign takeover will result in some backlash. The company employs more than 100 000 workers, which would involve some serious maneuvering by the companies for a peaceful and acceptable takeover.
The current political and economic situation due to the pandemic may have some bearings over how the talks shape up.
Couche-Tard has a market value of $37 billion, and has adopted the path of acquisitions to grow its presence across the world. Last year it bid for Speedway, the U.S. petrol station group owned by Marathon Petroleum that was eventually acquired by Japanese rival Seven & i Holdings for $21 billion. It also had plans to acquire Caltex Australia in a $5.8 billion deal, which would have gained it a presence in a third continent, but it was forced to abandon the deal in April due to the pandemic.
Couche-Tard 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. It has more than 9,200 convenience stores spread across North America and employs about 109,000 people.
It has about 3000 stores in Europe. Besides convenience stores, it owns petrol stations too, generally located on-site of its stores.
The Canadian chain store bought the U.S. gas-station operator CST Brands Inc. for around US $4 billion in 2016, and gained a foothold in Scandinavia and the Baltic region through its 2012 purchase of Statoil Fuel & Retail ASA.
Carrefour is France’s largest grocery chain with about 2,000 supermarkets and more than 700 large-format hypermarkets in Europe. It has a presence in Brazil and Argentina too. Carrefour has about 320,000 workers globally, and is the biggest private employer in France.
The chain store is headed by Alexandre Bompard, who has been aggressively looking to streamline the operations and has brought in cost-cutting measures in recent years, allowing him to make significant investments in developing ecommerce. The move has paid off for the company during the pandemic.
Carrefour’s market value is €12.5 billion and has a net debt of €15.8 billion.
The retail industry has seen over US $182 billion deals in the past 12 months, according to data compiled by Bloomberg. In the U.K., TDR Capital teamed up with the E.G. Group in October to acquire a majority stake worth £6.8bn in grocer Asda from Walmart Inc.
“If this deal were to be completed it would be a truly mega-event in the world of food and convenience retailing,” Clive Black, head of research at Shore Capital, said in a note. “We shall be interested in any prevailing investment thesis on rationale and synergy.”
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