France’s Carrefour and Canada’s Couche-Tard Are in Takeover Talks. Here’s Why Grocers Need to Consolidate.
The entrance of a Carrefour supermarket in Rosny-sous-Bois on Nov. 3, 2020.
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Shares in Carrefour, France’s biggest supermarket group, rose as much as 11% on Wednesday, after Canada’s Alimentation Couche-Tard said it was in early-stage takeover talks.
The two firms are worth more than a combined $50 billion, and a deal would give the Montreal-based Circle K owner, which mainly sells groceries through its convenience store formats, access to Carrefour’s larger supermarket footprint and boost its presence in Europe and South America.
The back story. Europe’s largest retailer, Carrefour, has been hit hard by competition from Amazon and other online rivals. Shopping habits are changing. Pre-Covid, consumers were already spending less time in malls and on shopping streets, preferring to buy online. The Covid-19 pandemic has accelerated that trend, which is expected to stick.
The French-listed supermarket group launched a turnaround plan in 2018 with a cost-cutting drive that delivered €1 billion of savings in 2019. It has also invested heavily in online services, which are beginning to boost earnings and shares.
The problem facing pre-internet retailers is fierce competition from online rivals that are unburdened by physical stores with costly rent, rates, staff, and heating costs. Mergers are seen as a way of cutting costs
Already investors have seen Walmart attempt to merge its then U.K. chain Asda with rival Sainsbury’s in a deal that eventually failed to get through regulatory hurdles. Supermarket groups see mergers as a key way to cut costs and gain efficiencies by sharing distribution networks and technologies.
What’s new. On Tuesday evening, both firms confirmed the early-stage talks in separate statements. The French group said: “Carrefour has been approached, in a friendly manner, by the Alimentation Couche-Tard group, with a combination project. Discussions are very preliminary.”
Its rival “confirms it has initiated exploratory discussions with Carrefour regarding a potential friendly transaction, the terms of which are still subject to discussion.” Couche-Tard said there can be no certainty at this stage that these exploratory discussions will result in any agreement or transaction.
Looking ahead. The two groups have very different store formats, and have little geographical overlap. While this is excellent news in terms of any regulatory challenge, it does raise the question of rationale and the potential for synergies.
Clive Black, an analyst at broker Shore Capital, said: “If this deal were to be completed it would be a truly megaevent in the world of food and convenience retailing.”
It should also be noted the highly acquisitive Alimentation Couche-Tard has a record of making approaches but they don’t always come to anything. It recently failed in its attempt to buy Caltex in Australia and Speedway in the U.S.
Either way, analysts at Citi think, whatever the outcome, it’s good news for Carrefour investors: “In the event that ATD’s approach fails, we would expect Carrefour to approach its recovery plan with renewed urgency, providing investors with a pathway to better shareholder returns.”
It could also pique interest from rival supermarket groups looking to go grocery shopping.
