Auchan's US$19b Carrefour talks said to stall over terms

Paris

FRENCH grocer Auchan made a recent approach to acquire rival Carrefour SA for about US$19 billion but talks to create the country's market leader stalled over the terms, according to people familiar with the matter.

Auchan had approached Carrefour about a combination that would have seen Auchan, which is owned by the Mulliez family, hold a majority stake in the combined entity, the people said. The talks took place amid a flurry of dealmaking activity in the European supermarket sector.

However, the discussions were halted over disagreements among shareholders in both companies on the valuation and structure of a deal, said the sources.

Privately held Auchan proposed a deal that would have valued Carrefour at about 21 euros per share, or about 16.6 billion euros (S$26 billion), said the people. The stock closed at 16.03 euros last Friday. Carrefour management and key shareholders viewed the range of 20 euros to 21.25 euros as too low, they said. The complex structure of a cash-and-share transaction also proved a stumbling block.

It's unclear whether discussions will be revived, the people said. Representatives for Auchan and Carrefour declined to comment.

Speculation has been ripe about consolidation among French grocers, who face cutthroat pricing and competition from low-cost German rivals. Carrefour held talks with Auchan earlier this year about a possible tie-up, Le Monde reported last month. The Mulliez family told a local newspaper earlier this month that they "will never sell Auchan", somewhat dampening speculation. However, the current talks foresee the company as the buyer, not the seller, in any deal with Carrefour, the people said last week.

The prospect of a tie-up has had varied responses from analysts. A combination would increase exposure to giant hypermarkets as well as create a larger presence in complex markets such as Russia. It could also face antitrust or political hurdles. On the other hand, it could generate significant cost and buyer synergies, analysts wrote last month.

Carrefour chief executive officer Alexandre Bompard has been struggling to prop up the grocer's share price even though analysts say a turnaround of the company's troubled domestic hypermarkets is starting to bear fruit. He has tried to revive the chain by increasing its range of higher-margin organic food and boosting its online offerings. Carrefour has been seen as a potential dealmaker since the French government in January blocked an attempted takeover by Canada's Alimentation Couche-Tard for 20 euros per share.

A Canadian-French merger would have created a retail powerhouse, combining Couche-Tard's North America-focused network of 14,200 convenience stores with Carrefour's sizeable European operations, which include hypermarkets and smaller outlets. It could also have ranked as one of the biggest-ever takeovers of a French company by a foreign entity.

A tie-up between the French players Auchan and Carrefour might be more politically palatable, though issues such as job cuts could be controversial ahead of a closely watched April presidential election.

Auchan has been losing market share for years in France due to its strong exposure to hypermarkets, but cost-cutting has allowed it to mitigate the fallout, Barclays analyst Nicolas Champ wrote in a Sep 30 note. It's the fifth-biggest food retailer in France with a market share of 8.9 per cent, compared with about 19 per cent for Carrefour, the analyst wrote, citing Kantar data.

The market leader is the Leclerc group, which competes with the likes of Casino Guichard Perrachon SA, whose strength lies in urban convenience stores. They're all facing pricing pressure from Germany's Lidl and Aldi.

Takeover activity in Europe's supermarket sector has been heating up, with grocers outperforming other retailers during the pandemic as consumers stockpiled food and worked from home.

Talks between Carrefour and Auchan affect some of the wealthiest families in France. The Mulliez clan also has holdings in retailers like sporting-goods chain Decathlon and home-improvement brand Leroy Merlin.

Among Carrefour's key shareholders are the Moulin family, whose other interests include Galeries Lafayette department stores. Billionaire Bernard Arnault, the world's third-richest person, recently sold his remaining holding for 724 million euros, ending a 14-year investment in the supermarket chain. BLOOMBERG