The entrance of a Carrefour supermarket in Rosny-sous-Bois on Nov. 3, 2020.
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Shares of Carrefour, France’s largest supermarket group, rose 11% on Wednesday, after Canadian food
Couche-Tard
said he was at the start of takeover negotiations.
The two companies are worth more than $ 50 billion combined, and a deal would give Montreal owner Circle K, which primarily sells groceries through its convenience store formats, access to Carrefour’s largest supermarket footprint and strengthen its presence in Europe and South America. .
Carrefour,
has been hit hard by competition
Amazone
and other rivals online. Buying habits are changing. Before Covid, consumers already spent less time in malls and shopping streets, preferring to shop online. The Covid-19 pandemic has accelerated this trend, which is expected to continue.
The group of supermarkets listed in France launched a recovery plan in 2018 with an effort to reduce costs which made it possible to save 1 billion euros in 2019. It has also invested heavily in online services, which start to boost profits and stocks.
The problem facing pre-internet retailers is fierce competition from online competitors who are not crowded with brick-and-mortar stores with expensive rents, tariffs, staff, and heating costs. Mergers are seen as a way to cut costs
Already investors have seen
Walmart
attempt to merge its British channel from the Asda era with its rival
Sainsbury’s
in a deal that ultimately failed to overcome regulatory hurdles. Supermarket groups see mergers as a key way to cut costs and gain efficiency by sharing distribution networks and technologies.
What’s up. On Tuesday evening, the two companies confirmed the preliminary negotiations in separate statements. The French group declared: “Carrefour has been approached, in a friendly manner, by the Alimentation Couche-Tard group, with a merger project. Discussions are very preliminary. ”
His rival “confirms having engaged in exploratory discussions with Carrefour on a potential amicable transaction, the terms of which are still under discussion. Couche-Tard said that there can be no certainty at this point that these exploratory discussions will result in a deal or transaction.
Look forward. The two groups have very different store formats and have little geographic overlap. While this is great news in terms of a regulatory challenge, it raises the question of the rationale and potential for synergies.
Clive Black, analyst at brokerage Shore Capital, said: “If this deal were to go through, it would be a real mega-event in the world of food and convenience retail.”
Also worth noting is the strong acquisition
Couche-Tard Food
has a track record of approaches, but they still don’t get anywhere. It recently failed in its attempt to buy Caltex in Australia and Speedway in the United States.
In any case, Citi analysts believe that whatever the outcome, this is good news for Carrefour investors: “If ATD’s approach fails, one would expect that Carrefour approaches its recovery plan with renewed urgency, offering investors a path to better returns for shareholders. . ”
It could also pique the interest of rival supermarket groups looking to shop.
