Shares plunge, analysts scratch heads after Couche-Tard makes $25B offer for grocery chain Carrefour

Alimentation Couche-Tard’s $25-billion potential play for French-based grocery chain Carrefour SA is getting a thumbs down from its personal traders and skeptical analysts.

The Quebec-based firm’s shares plunged 10.5 per cent, or $4.35 at $36.96 in noon buying and selling on the Toronto Inventory Trade.

Analysts questioned the rationale for the non-binding takeover provide at a worth of 20 euros ($30.88 Cdn) per Carrefour share.

Peter Sklar of BMO Capital Markets mentioned there’s “restricted strategic rationale” for such an acquisition.

“We’re skeptical that an acquisition of Carrefour by Couche-Tard or a mixture of the 2 firms will come to fruition attributable to quite a few concerns,” he wrote in a report.

‘A little bit of a headscratcher’

A extra compelling transaction, he mentioned, can be to pursue Carrefour’s 7,700 international comfort shops.

Derek Dley of Canaccord Genuity referred to as it a “questionable pivot.”

“We view the transaction as a little bit of a headscratcher, as it could contain Couche-Tard partially departing from its core competencies of c-store and gas retailing (which garner larger buying and selling multiples) and as a substitute venturing into the lower-multiple grocery enterprise, which we consider can be seen negatively by traders,” he wrote.

Dley added that the minimal geographic overlap and a difficult working setting in France recommend that value financial savings can be decrease than Couche-Tard has realized in previous transactions.

Nonetheless, the largely money transaction can be anticipated so as to add about 30 per cent to his fiscal 2022 earnings estimate.

The acquisition would probably be a great match with Couche-Tard’s 2,700 shops in Europe, added Chris Li of Desjardins Capital Markets.

Carrefour’s comfort shops account for about 10 per cent of its $11.42 billion in European revenues and $634 million of EBITDA (earnings earlier than curiosity, taxes, depreciation and amortization).

Retail operations more and more blurring

Couche-Tard might promote the grocery enterprise however Li questions whether or not it is sensible to undergo the difficulty simply to maintain such a small share of the enterprise.

“Based mostly on Couche-Tard’s monitor file of strolling away from offers that had been both costly or didn’t make strategic sense, we’re assured this stays the case,” he added.

The shortage of particulars a couple of potential transaction make it tough to evaluate whether or not its historic monetary self-discipline will likely be maintained regardless of its demonstrated willingness to “take daring steps to develop the corporate,” mentioned Irene Nattel of RBC Dominion Securities.

Couche-Tard operates comfort shops largely underneath the Circle Ok model in Canada, the USA and Europe. It not too long ago took steps to develop into Asia. (CBC)

She famous that retail operations are more and more blurring with firms extending into adjoining companies.

For instance, Asda was bought final October from Walmart by the consortium behind EG Group.

Couche-Tard mentioned the phrases of the proposal are underneath dialogue and stay topic to diligence, however the consideration is predicted to be in money in giant majority.

It cautioned that there could be no certainty at this stage if the talks will lead to a deal.

Based greater than 60 years in the past, Carrefour operates practically 13,000 hypermarkets, supermarkets and comfort shops in France, Spain, Italy, Belgium, Poland, Romania, Brazil, Argentina and Taiwan.

About 48 per cent of $110 billion of revenues are in France, 30 per cent elsewhere in Europe, 20 per cent in Latin America and two per cent in Asia.

Carrefour has a market capitalization of $19 billion in contrast with $45 billion for Couche-Tard and an enterprise worth of $41.8 billion versus $52 billion for the Canadian retailer.

Couche-Tard operates comfort shops largely underneath the Circle Ok model in Canada, the USA and Europe. It not too long ago took steps to develop into Asia.

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