Carrefour shows not even Europe's largest retailers are immune to takeover talk

Wednesday 13th January 2021 17:15 GMT

Carrefour is as ubiquitous in the French grocery market as Tesco - the company with which it has vied for years for the title of Europe's largest retailer - is in the UK.

Yet even a company the size of Carrefour, which employs 320,000 people in more than 30 countries, is not immune from the threat of takeover.

It confirmed today it has received an approach from Alimentation Couche-Tard, the Canadian convenience store operator, sending its shares up by nearly 15%.

Carrefour, which - with 105,000 employees in France - is the country's biggest private sector employer, said talks were at a very preliminary stage but that the approach was friendly.

That may go some way to assuaging the concerns of the French government which, interventionist at the best of times, has been even more deeply involved in private sector matters than usual as it seeks to protect the public from the economic impact of COVID-19.

Carrefour is one of 10 French companies - others include the bank Societe Generale - put on a list compiled by the then-prime minister, Dominique de Villepin, in 2005 that he intended to keep French. That was in response to unwanted interest from PepsiCo in Danone, the yoghurt maker, which is also on the list.

Governments of all complexions in France have traditionally been very suspicious of mergers and takeovers and especially when a French company has attracted the interest of a would-be foreign buyer.

Moreover, Carrefour is a national champion, a mainstay of the CAC-40 index and a pioneer in its field. Founded in 1959 by Marcel Fournier, a novelty shop owner from Annecy, and brothers Denis and Jacques Defforey, who owned a food wholesale business, it was responsible for bringing the concept of the hypermarket, first dreamed up in the 1930s in the US, to France.

It was a concept that has stood the test of time and which remains immensely popular with the French public: a survey in 1987 by L'Expansion, the French business magazine, found that the hypermarket was regarded as the greatest innovation of the previous two decades, ahead even of the contraceptive pill and the high-speed train.

So this is not just any old company - it is one that has been at the very heart of French culture for more than half a century.

By comparison, its would-be buyer, Couche-Tard, is a relative upstart. It was founded by the entrepreneur Alain Bouchard from a single store in St Jerome, a city 30 miles to the north of Quebec, in 1980.

Mr Bouchard, who is now one of Canada's richest people, has an inspirational story. His father, Jean-Paul, had owned a successful road construction business in the early 1950s but, when a key client went bust, so did the company.

The family were forced to move from living in fairly comfortable circumstances to living in a mobile home. Although Jean-Paul later rebuilt his career, successfully inventing a cement-injecting pump after taking work on a hydro-electric dam, the episode gave his son the drive to run his own business and enjoy the living standards he enjoyed as a child.

He certainly achieved that. Couche-Tard now employs 131,000 people worldwide from 14,200 stores, including more than 2,700 in Europe, where it operates in Scandinavia, the Baltics, Russia, Poland and Ireland. With a stock market valuation of C$45.7bn (£26.3bn), it is valued at more than twice as much as Carrefour, which even after today's share price rise has a market capitalisation of €12.4bn (£11.1bn).

Interestingly, Couche-Tard's rapid growth story strongly resembles that of EG Group, the petrol station business founded by Mohsin and Zuber Issa, the two brothers who recently bought Asda. It has based its breakneck expansion on buying petrol forecourts and operating the convenience stores that sit alongside them.

The pair even went head-to-head last year in a takeover battle for Caltex, one of Australia's biggest petrol station operators, which has yet to be resolved even though Couche-Tard walked away.

It may well be that the move by the Issa brothers for Asda has inspired Couche-Tard to go for Carrefour. While there is not too much geographic overlap between Couche-Tard's operations and those of Carrefour, some analysts believe the Canadian company is interested in Carrefour as a way of protecting revenues should they fall at its forecourt outlets, whose sales are seen as less predictable with the advent of electric vehicles.

The company has taken the issue seriously for years and, in 2013, it expanded into Scandinavia partly to study closely the market in Norway, not only because it is particularly competitive, but also because it is a country where electric vehicles have been adopted by the population far more readily than elsewhere.

Ironically, at the time, Mr Bouchard told Toronto's Globe and Mail newspaper that France was bottom of the list of countries into which Couche-Tard wished to expand because the sale of tobacco - which makes up two-fifths of Couche-Tard's revenues - is barred in convenience stores there.

It is also possible that Couche-Tard has decided to pounce given the weakness in Carrefour's share price which, from April 2015 until Tuesday night when the takeover approach was first reported, had fallen by 53%. The company's performance has disappointed investors for a number of years now, with sales sluggish in its home market, where it has faced fierce competition from rival supermarket operators such as Auchan, Leclerc and Casino.

It has also suffered falling sales in a number of key overseas markets including Argentina, Belgium and China, where - like Tesco and Walmart - it has given up control of its business to a local partner.

That said, as with other supermarkets around the world, the company enjoyed a fillip to sales last year from COVID-19. Its sales grew during the July-September quarter at their fastest pace for 20 years.

That should guarantee it a hearing from long-suffering shareholders should Couche-Tard go hostile.

How the saga unfolds will be fascinating. Apart from Carrefour's shareholders, who include Bernard Arnault, France's richest man, the French government is likely to take a close interest. And so, too, are the trades unions. Carrefour is heavily unionised while Couche-Tard has fought for years to prevent unionisation in its business.

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