Carrefour suitor has few regrets about a 'good deal' that failed

[PARIS] After a tumultuous week that saw the French government shut down an attempt to take over Carrefour SA, executives at Alimentation Couche-Tard Inc. lamented the timing of events, but not the move.

"We regret the surprise. We don't regret the project," Chief Executive Officer Brian Hannasch said in an interview Monday. "This was a good deal for Couche-Tard shareholders. It was a good deal for France." The proposed US$20 billion acquisition was still being negotiated when it was reported by Bloomberg on Tuesday. Three days later, Mr Hannasch and Executive Chairman Alain Bouchard received a sharp rejection from French Finance Minister Bruno Le Maire.

In between, analysts and investors debated the company's sharp turn in strategy toward entering the supermarket business. Couche-Tard shares dropped about 13 per cent between the initial report and Thursday's close, before bouncing back on Friday as it became apparent the deal would sink in a morass of French politics.

Couche-Tard executives outlined their approach during a call with analysts Monday, saying they thoroughly researched the target, visiting some 500 stores in the weeks before Christmas.

The combination would have propelled the Laval, Quebec-based company into the top ranks of global retailers, giving it the scale to navigate a fast-changing landscape where consumers want various store formats and shopping options, the executives said.

Couche-Tard's focus until now has been convenience stores and gas stations with more than 14,000 locations across North America, Europe, Asia and Latin America. That could change even without Carrefour in its shopping cart.

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"We are more than just a small box retailer," Mr Hannasch said. "The world is changing and it's going to take competitors with the right scale, and the right culture, and the right focus to win."

Carrefour, best-known for huge out-of-town stores that sell everything from baguettes to T-shirts to grass seed, has scaled back its hypermarkets while investing in convenience stores, e-commerce and organic food under Chief Executive Officer Alexandre Bompard.

Mr Hannasch said Couche-Tard was supportive of Carrefour's strategy, which also focuses on better understanding the customer and getting the pricing right. "What we thought we could bring was just an acceleration of the operational focus on running the business well," he said in interview.

In the short term, Couche-Tard was also in a good position to help Carrefour speed up plans to add 3,000 convenience stores to a current network of more than 7,000, Mr Hannasch said.

Geographic Fit

Speaking to analysts, Mr Hannasch touted the complementary geographies of the two companies. Couche-Tard has stores in Norway, Poland and other European countries but is absent from key markets in Western Europe and South America where Carrefour operates, including France, Spain and Brazil.

As they now consider a looser alliance, Couche-Tard can learn from Carrefour's expertise in bakery and ready-made meals, Mr Hannasch said.

The thwarted deal gave investors a peek at where Mr Bouchard, one of Canada's richest men, is thinking of taking Couche-Tard. Besides grocers, the company has looked at dollar stores, quick-service restaurants and stores at train stations or airports, Mr Hannasch said.

But food and fuel remain the products the company is focusing on - and acquisitions are in its DNA, he said.

Couche-Tard shares were up 1.6 per cent in Toronto at 3:16 pm, not enough to recover all of last week's losses. The share drop upset Mr Bouchard, who reminded analysts of past deals that had surprised investors too, only to prove successful. Carrefour fell 6.9 per cent on Monday, the most since March, extending its decline for a third session.

Since 2011, earnings before interest, taxes, depreciation and amortisation have grown an average 22 per cent a year, Mr Hannasch added.

"Long-term shareholders stayed with us," Mr Bouchard said in an interview. "There was maybe an emotional reaction from some portfolio managers there - and we didn't deserve that."

BLOOMBERG