Auchan would have “much more to gain” on Carrefour Merger: Barclays
Auchan would have much more to gain from a potential connection to Carrefour, Barclays has suggested, and take advantage of the latter’s more advanced digital strategy, more diversified portfolio and better pricing.
In early January, reports proposed that Auchan is looking to raise financial investors to place a bid on Carrefour of € 23.50 per share, a few months after previous failed merger negotiations.
This would probably be a 100% cash offer, according to a Report Les Echos.
Although there is no evidence that this will happen, nor any confirmation from either party that a bid is underway, Barclays believes that Auchan would potentially benefit more from each proposed deal.
“Can trace from Carrefour’s recovery”
Barclays analysts Nicolas Champ and James Anstead said in a news release that a potential merger with Auchan could “derail Carrefour’s ongoing recovery in France”, while exposing the supermarket format in France to an estimated 60%, up from the current 50%.
According to the bank, the merger would provide potential synergy savings of around € 930 million, or 0.9% of total sales, reflecting “uncertainty about the levels of necessary divestments”.
This is lower than the synergy savings from the 2016 merger of Ahold and Delhaize, which amounted to 1.2% of total sales (EUR 750 million), the authors note.
“In addition, it is possible that some of any savings would be reinvested to improve Auchan’s pricing position and accelerate its online strategy,” they say.
Competition and antitrust problems
It is also likely that all proposed deals will be subject to extensive scrutiny by the French government and red-flagged due to antitrust issues. The authors note the proposed bid from Canada’s Couche-Tard at Carrefour last year, which was spearheaded by French authorities.
As the authors put it, it is “difficult to quantify the likelihood of this potential link happening”, especially ahead of the French presidential and parliamentary elections, which take place in April and June respectively.
Carrefour will report its full-year results on February 16, when it will likely report “improving” results, as well as an “ambitious FCF generation goal for this year”, Barclays suggests.
As Bloomberg noted in January, when commenting on a potential deal, “securing a deal would mean buyers making compromises. A willingness to do so indicates some desperation to get a transaction done.”
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