Canadian convenience store operator Alimentation Couche-Tard Inc.'s potential acquisition of French supermarket chain Carrefour SA, announced Jan. 13, would create one of the world's largest food and staples retailers with a global presence.
Couche-Tard, owner of the Circle K brand, on Jan. 12 said it had begun exploratory talks for a potential "friendly transaction," which Carrefour subsequently confirmed. Within 24 hours, the Canadian company submitted a non-binding, €20-per-share offer, which would value Carrefour at about €16.16 billion, or close to $20 billion. The terms of the deal are under discussion and subject to due diligence. Couche-Tard said it expects the "large majority" of the consideration to be paid in cash.
On the Paris stock exchange, shares of Carrefour closed up €2.08, or 13.4%, to €17.68. In contrast, Couche-Tard's shares were down 4.27 cents, or 10.3%, to CAD$37.04 in morning trading on the Toronto stock exchange,
Carrefour is the bigger company in terms of sales, with revenue of about $89.1 billion in 12 months to the end of July 2020, on par with the U.K.'s largest supermarket chain, Tesco PLC. While Couche-Tard reported total revenue of about $46.7 billion in the last 12 months to the end of November 2020, about half that of Carrefour, its $32.18 billion market cap is almost twice as high.
A combination of Couche-Tard and Carrefour will provide competitive power, geographic reach and negotiating muscle when it comes to dealing with suppliers. But while it would dramatically increase Couche-Tard's retail footprint in western Europe, Brazil and Argentina, the little overlap between the companies' physical store networks could make it hard to achieve significant savings from streamlining duplicate operations.
Couche-Tard, founded in 1980, is one of the biggest convenience store operators in Canada and the U.S. It runs 9,261 sites in North America. In Europe it is mainly present in Scandinavia, Russia, Poland, the Baltic countries and Ireland. Carrefour, founded in 1959, has 12,225 stores in over 30 countries and generates half of its revenue outside France. Best known as an operator of supermarkets and hypermarkets, it also runs more than 7,000 convenience stores worldwide.
Couche-Tard, whose shares have considerably outperformed those of its French counterpart over the past five years, may have been attracted to Carrefour's increasing push into the convenience store business. "The convenience store format is very successful with our customers," Carrefour says on its web site. "In 2018, we were able to open 470 (145 of which in France) of the 2,000 initially planned worldwide. We have raised our targets since then: 3,000 convenience stores are expected to open by 2022."
Financially, too, Couche-Tard may be on a stronger footing. Its pandemic-hit European operations have made a recovery and, in November 2020, it reported better-than-expected adjusted diluted EPS for the second quarter of fiscal 2021, up 32% from the year-ago period. Carrefour, meanwhile, is in the midst of a multi-year effort, dubbed Carrefour 2025, to improve productivity and performance, to attract more consumers to online grocery shopping, and to offset declining sales in its large-format hypermarket stores in France.
Couche-Tard has been on an acquisition tear in recent months. In November 2020 it agreed to buy Circle K Hong Kong for about $360 million, and in September 2020 it acquired a 7.4% stake in cannabis products retailer Fire & Flower Holdings Corp. Some months earlier it had made a bid for Marathon Petroleum Corp.'s U.S. gas station and retail business Speedway LLC, though that was eventually acquired by Seven & i Holdings Co. Ltd. In April 2020, as the COVID-19 pandemic took hold and demand for fuel plunged, Couche-Tard abandoned its $5.6 billion plan to acquire gas station operator Caltex Australia Ltd.
Recently, however, Couche-Tard's management once again reiterated its desire for deals. "From a capital allocation perspective, we want to keep reinvesting in the growth and maintenance of our business," said CFO Claude Tessier, during an earnings call on Nov. 25, 2020. "And frankly, our priority number one is the allocation of capital towards our strategic priorities, and inorganic initiatives also such as M&A are really the priority."