Auchan’s $19bn acquisition of Carrefour

During spring 2021 Auchan had made a c. EUR 21.5 per share bid for Carrefour. This follows prior reporting that Carrefour has been negotiating with Auchan for potential business combinations, although talks seem to have cooled off.

Per subsequent reporting, there were several possible stumbling blocks, including regulation and differences over the pro-forma ownership.

Investment Considerations

The key selling point for the deal was likely the significant cost and buying synergies to be realized post-combination. Within Carrefour’s core market (France), the new company would generate sales of c. EUR50 billion (not accounting for likely asset disposals that would be needed to comply with regulations), implying clear market leadership at a sub-30% share of the market.

Retail market industry in a nutshell

The retail industry in France shows a rather stagnant sales volume in the last decade with 43.9bn retail selling, with supermarkets and e-commerce growing faster than the declining hypermarkets. The market is expected to grow at a rate exceeding 2% for each year from 2021 to 2025, with a significant contribution from the rise in non-store retailing. As stated in a recent McKinsey report, for the future of the industry it will be important to see how the current players will cope with the changing needs of consumers, manifested through the following trends:

  • E-Grocery – 25% of consumers who already bought online want to increase their online
    purchasing even further
  • Price sensitivity – 37% of consumers plan to look for ways to save money while grocery
    shopping
  • Demand for healthy, sustainable, and local products – of consumers intend to spend more on healthy eating in 2021
  • Technology as a differentiator – 13% annual growth of investments in warehouse
    automation

Auchan and Carrefour

Auchan and Carrefour are two of the biggest retail protagonist in the France and European landscape: both companies make half of their revenues in the French market, with Auchan having 4.4% market share and the latter being the market leader with a market share of 8.7%. For both companies the declining sales volume in hypermarkets still consists for almost half of their total revenues, while supermarkets, convenience stores and e-commerce are growing fast.

Conclusions

Auchan and Carrefour have cancelled merger talks despite the strong potential to create a French retail giant due to the complexity of the deal both in terms of structure and valuation and the lack of alignment of strategic vision for the new merged entity.

Read and download the full report here

Authors : Massimo Spinelli, Riccardo Celani, Lina Bouzouba

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