Should Carrefour and Groupe Casino ever decide to merge, they would create a business that would lead the market in France and Brazil, while also benefiting from 'significant synergies', a new report from Barclays has found.
Barclays said that while talks between the two operates failed last year, a merger of the two French retail giants could be again on the table, given the challenges experienced by Rallye, Casino's largest shareholder.
In addition, Carrefour CEO Alexandre Bompard has suggested in recent interviews that "there will be consolidation in the retail sector in the coming years", re-igniting discussions over whether the group is planning to make a move for one of its major rivals.
In its report, Barclays suggests that a merged Carrefour and Casino would see potential gross savings of between 0.7% and 1.1% of total sales, which could be worth more than €1 billion.
This would be value-accretive for shareholders, while execution risks would also be relatively limited, according to Barclays.
Total sales at the combined entity would be in excess of €110 billion, with EBIT of around €3.3 billion.
Competition Concerns
The biggest hurdle to a merger would likely come from a competition perspective, with the recent collapse of the Sainsbury's-Asda merger highlighting the 'risk of presuming regulatory consent', says Barclays.
The hypothetical Carrefour-Casino entity would have a market share of around 30% in France and around 50% in Brazil, making it a leader in both markets, and likely necessitating significant store disposals.
But the French competition authorities have moved in the past to approve deals that would see significant sector consolidation, such as that of Fnac and Darty in 2016.
Fnac's chief executive at the time, of course, was the current Carrefour CEO Alexandre Bompard, indicating that the young executive has previous when it comes to navigating a complex merger process.
Commercial Synergies
A proposed merger could present commercial synergies in that the formats of both are complementary; Carrefour is more skewed towards hypermarkets, while Casino's store network is focused around supermarkets and convenience stores.
Casino's Géant hypermarket division could also benefit from conversion to the Carrefour banner, given the latter's better price perceptions, says Barclays.
However, Carrefour would likely be less enamoured by Casino's Leader Price banner, with the banner seen as a 'logical candidate' for store disposals, in the event that the French competition authorities required them.
Store disposals would also be a likely necessity in Paris, according to Barclays, as a combined Carrefour-Casino business would control around 80% of the selling space and between 72% and 85% of food spend in the capital's inner city.
Strong Liquidity
Carrefour is also sitting on a growing cash pile, says Barclays, with the recent sale of an 80% stake in its operations in China for around €1 billion, and the sale of its Cargo Property Assets logistics division to Argan for €290 million.
This provides Carrefour with 'ammunition, if the company were to consider a partial cash offer', according to Barclays.
Carrefour would be unlikely to 'pay a significant premium to Casino's shareholders', says Barclays, due to a number of factors: the weak negotiating position of leading shareholder Rallye; a lack of potential buyers within France for the Groupe Casino as a whole; and the relative weakness of Casino's performance in France.
Last year, Casino completed a €1.5 billion asset disposal programme, and promptly announced plans to dispose of a further €1 billion worth of assets, Barclays noted. However, this wasn't enough to prevent a further downgrade of Casino's debt rating in France, by ratings agency S&P, in April.
Notably, Carrefour has been fairly quiet as regards snapping up Casino's offloaded assets, with the majority of disposed stores since the start of the year being acquired by discounter Lidl or by independently-operated Leclerc members.
'If such a combination were to proceed, we believe Carrefour would have more to gain', Barclays said.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
