CRRFY Carrefour SA (PK)

By Noemie Bisserbe, Saabira Chaudhuri and Ben Dummett 

PARIS -- Canada's Alimentation Couche-Tard Inc. said it has made a 16.1-billion-euro offer, equivalent to $19.66 billion, to buy French hypermarket chain Carrefour SA, as large retailers come under pressure to transform their bricks-and-mortar footprint amid pandemic restrictions on shopping and disruption from tech giants.

A merger would combine two companies with very different formats and geographical footprints into a $53 billion giant, making it the world's third largest grocery retailer, behind Walmart Inc. and Lidl owner Schwarz Group. Retailers are in a rush to find new ways to get food to customers ordering online as the spread of Covid-19 has massively accelerated online grocery shopping, including click-and-collect.

Carrefour -- which opened its first store in 1960 -- is one of Europe's largest grocery retailers. It also operates hypermarkets and supermarkets in Asia and Latin America. The 31-year-old Couche-Tard is the largest independent convenience store operator in North America, operating under brands such as the Corner Store, Circle K and Holiday. It also operates a network of gas stations in Europe and has stores there and elsewhere in the world.

Carrefour shares were up 15.5% in Paris on Wednesday. Couche-Tard shares were down 10.05% in Toronto.

Jefferies analyst James Grzinic said he was a little blindsided by the talks, saying it was hard to map out synergies because overlap between the retailers is virtually nonexistent. He described the talks as a major departure from Couche-Tard's stated strategy of maintaining return on capital employed at above 15%.

Carrefour announced the talks in the early hours of Wednesday, saying Couche-Tard approached the company. Couche-Tard said there was "no certainty at this stage that these exploratory discussions will result in any agreement."

If the companies merge, Couche-Tard would have the controlling hand, analysts say.

The grocery store landscape has seen a string of large deals over the past few years as companies look to compete with Amazon.com Inc. and traditional rivals that have increased online investments.

Many grocers have also struggled with being squeezed in the middle as discounters such as Aldi, Lidl and Walmart Inc. and upscale chains such as Amazon's Whole Foods chain have done well. Throughout the Covid-19 pandemic, most grocers have benefited as consumers hunker down to cook and eat at home.

The sector's latest deal involves Walmart, which is currently awaiting regulatory approval to sell a majority stake in British grocery chain Asda Group Ltd. for $8.8 billion to a private investment group that also owns a business running thousands of convenience stores in gas stations. That deal isn't looking to merge the two businesses, but is expected to see Asda open convenience stores in gas stations.

A similar path could be followed in the event of a deal between Couche-Tard and Carrefour, according to one person familiar with the matter.

The lack of overlap between the companies is, however, a positive in terms of gaining regulatory approval for any deal. Walmart initially tried to sell its Asda stake to another U.K. grocer, but the deal collapsed in 2019 after Britain's regulator blocked it saying it could lead to higher prices for consumers.

Analysts raised concerns the French government -- which has a history of blocking foreign takeovers of French firms -- could be hostile to an acquisition of Carrefour. Carrefour is one of the nation's largest employers with about 105,000 employees in France. The group employs more than 321,000 people world-wide and owns 12,225 stores in more than 30 countries.

It has been working to cut costs and invest in building up its e-commerce offerings in recent years, under the leadership of Alexandre Bompard, who became chief executive in 2017. The strategy has held it in good stead through the pandemic. Carrefour posted its best performance in at least two decades in the third quarter of 2020.

Couche-Tard's approach showed that "at the current share price, Carrefour is cheap and that the turnaround story is moving in the right direction," analysts at French bank Société Générale said.

Write to Noemie Bisserbe at noemie.bisserbe@wsj.com, Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Ben Dummett at ben.dummett@wsj.com

(END) Dow Jones Newswires

January 13, 2021 11:07 ET (16:07 GMT)

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