European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Auchan/Carrefour: Ongoing Merger Plans, LBO

Event-Driven

<a href="https://www.smartkarma.com/entities/carrefour-sa" target="_blank" data-smartkarma-citation="entities:21409:1" rel="noopener">Carrefour SA (CA FP)</a> 's shares have fallen this Thursday, 14 January, after the French government yesterday showed its opposition to a possible merger with the Canadian company <a href="https://www.smartkarma.com/entities/alimentation-couche-tard-inc-544efbde-b153-4672-afd6-c4979a9734ee" target="_blank" data-smartkarma-citation="entities:25108:1" rel="noopener">Alimentation Couche-Tard (ATD/B CN)</a>.
<ul class="">
<li>Shares of Carrefour chain began the session with a fall of over 6.8% in the first 10 minutes of trading and closed 2.5% lower at €17.10.</li>
<li>The French Government, inclined to veto purchases of local companies by foreign firms, said yesterday, through its finance minister, that "a priori" it opposes the takeover.</li>
</ul>
Following a Bloomberg <a href="https://www.bloomberg.com/news/articles/2021-01-12/circle-k-owner-couche-tard-said-to-explore-purchase-of-carrefour" target="_blank" rel="noopener">report</a>, on 13 January Alimentation Couche-Tard confirmed that it had been discussing a friendly transaction to acquire Carrefour for €16.4 bn. Under the terms, the offer per share will be €20 per Carrefour share, expected to be mostly in cash. The terms of the transaction are under discussion and remain subject to due diligence.
The Canadian group of convenience stores seeks to acquire the French supermarket company to forge the third largest group worldwide by turnover, with €120 bn.
The unexpected move by Couche-Tard, which Carrefour described as “friendly” but “very preliminary”, comes at a time of price wars due to the rise of super discount chains; transformation of the business due to the strength of online commerce giants such as Amazon; and the pandemic driven difficulties, which have spurred the online channel to the detriment of physical stores.
<ul class="">
<li>Couche-Tard and Carrefour would create a giant with very different formats and complementary at a geographical level, but with little margin for synergies and cost savings.</li>
<li>If approved, the transaction would be by far and large the largest in the relatively short history of Couche-Tard, with non-negligible execution risk.</li>
<li>The move by the Canadian company is opportunistic and lacks any obvious synergies and strategic merit, in my view. The interest of Couche-Tard is mainly because of the low valuation of Carrefour (€15.46 per share prior to the disclosure).</li>
</ul>
If anything, the news highlight the lowly valuation Carrefour had before the disclosure, at c. 6.2x EV/Fwd EBITDA vs. median of comparables at c. 7.4x and Couche-Tard at at c. 8.5x (Capital IQ consensus) despite strong improvements in the business over the past two years.
I value Carrefour using a DCF based approach (FCF Capital IQ consensus estimates, 7.3% WACC and 1.5% terminal growth) with a PT of €17.8 (vs. a €19 median of Capital IQ consensus).
<ul>
<li>On this basis, I recommend LONG CA FP.</li>
<li>The approach highlights the sector's strong cash generation and relatively low valuation on fundamentals.</li>
</ul>

Carrefour SA (CA FP) 's shares have fallen this Thursday, 14 January, after the French government yesterday showed its opposition to a possible merger with the Canadian company Alimentation Couche-Tard (ATD/B CN).

Shares of Carrefour chain began the session with a fall of over 6.8% in the first 10 minutes of trading and closed 2.5% lower at €17.10.
The French Government, inclined to veto purchases of local companies by foreign firms, said yesterday, through its finance minister, that "a priori" it opposes the takeover.

Following a Bloomberg report, on 13 January Alimentation Couche-Tard confirmed that it had been discussing a friendly transaction to acquire Carrefour for €16.4 bn. Under the terms, the offer per share will be €20 per Carrefour share, expected to be mostly in cash. The terms of the transaction are under discussion and remain subject to due diligence.
The Canadian group of convenience stores seeks to acquire the French supermarket company to forge the third largest group worldwide by turnover, with €120 bn.
The unexpected move by Couche-Tard, which Carrefour described as “friendly” but “very preliminary”, comes at a time of price wars due to the rise of super discount chains; transformation of the business due to the strength of online commerce giants such as Amazon; and the pandemic driven difficulties, which have spurred the online channel to the detriment of physical stores.

Couche-Tard and Carrefour would create a giant with very different formats and complementary at a geographical level, but with little margin for synergies and cost savings.
If approved, the transaction would be by far and large the largest in the relatively short history of Couche-Tard, with non-negligible execution risk.
The move by the Canadian company is opportunistic and lacks any obvious synergies and strategic merit, in my view. The interest of Couche-Tard is mainly because of the low valuation of Carrefour (€15.46 per share prior to the disclosure).

If anything, the news highlight the lowly valuation Carrefour had before the disclosure, at c. 6.2x EV/Fwd EBITDA vs. median of comparables at c. 7.4x and Couche-Tard at at c. 8.5x (Capital IQ consensus) despite strong improvements in the business over the past two years.
I value Carrefour using a DCF based approach (FCF Capital IQ consensus estimates, 7.3% WACC and 1.5% terminal growth) with a PT of €17.8 (vs. a €19 median of Capital IQ consensus).

On this basis, I recommend LONG CA FP.
The approach highlights the sector's strong cash generation and relatively low valuation on fundamentals.


Carrefour - Alimentation Couche-Tard Non-Binding Offer