What will happen to Carrefour-Auchan
To understand what could happen in Italy, it is necessary to keep under observation what is happening in France in Carrefour-Auchan. Mario Sassi's in-depth analysis taken from his blog
If I were an employee of Carrefour Italy or a trade unionist at least for today I would breathe a slight sigh of relief. Just for today, of course. For the moment the worst solution has not passed. As I have already written, to understand what will happen in Italy, it is necessary to keep under observation what is happening in France.
Behind that “trop compliqué” pronounced by Alexandre Bompard CEO of Carrefour after five long months of confidential negotiations with the representatives of the Mulliez family that owns Auchan, there is acknowledgment of the enormous difficulty and inevitable consequences of operations of that size. But there is also the clarification of an equally clear strategy.
Auchan offered Carrefour € 21.50 per share (€ 16.8 billion), of which 70% in cash and 30% in shares of the company it would create. And this is much less popular with current shareholders … The Mulliez family association reveals some surprise at this abrupt interruption.
According to agency news, it was first of all the main Carrefour shareholder, the Moulin-Houzé family, to oppose the agreement. However you turn it around, the entire Carrefour is on the market. Preferably French. And this is a signal that should not be underestimated when it comes to concentrations necessary to face the future of large-scale distribution.
According to Reuters, the main reason that would have led to the opposition is that the proposal “It lacked industrial logic, caused competition problems and threatened jobs in France”. Others argue that, more prosaically, it is on the share counterpart that the real dissent has arisen. On the other hand, on the delicate problem of employment, the respective negotiators seem more concerned about the political consequences than the social ones. Auchan demonstrated this well in Italy buying the escape route, in France, with this operation, it will try to download it or share it, in whole or in part, with Carrefour. That's not the real problem between them.
It is evident that in merger operations the advantages in terms of important synergies and cost rationalizations produce often heavy side effects. One plus one never equals two. In France as in Italy. Antitrust, overlaps, skills, human resources evaluation, offices and so on are the other side of the coin. Experts add that the difficulties on the largest hypermarkets and in some countries such as Russia would even increase. Without considering the political obstacles in times of French elections. This time, however, the opposition came from within. From Carrefour's main shareholder, the Moulin-Houzé family, which owns, among other things, the Galeries Lafayette department store.
"We think there is potential for further offers from Auchan or at least disposals of strategic assets," Bernstein analysts pointed out. So the game is far from over. What is certain is that the consolidation of large-scale distribution due to internal pressure in the sector is struggling to take off. Not only with us. Carrefour said in June that it had begun to consider possible consolidations, disposals or combinations of its foreign subsidiaries, but has not yet made the decision to sell specific assets.
More than direct operators, it seems that the private equity funds are entering and being protagonists in the acquisitions of the sector. It happened with Asda, the third largest grocery retailer in Great Britain after Tesco and Sainsbury's owned by Walmart sold to Indian-born billionaires and private equity Tdr Capital. It is repeated with The Clayton Dublier & Rice fund which won Morrison the fourth largest supermarket operator in Great Britain. Will it also happen in Italy? It is very likely. The funds are watching the sector with great interest. Above all some regional or multi-regional realities. Personally, I receive several requests for information from Italy and abroad.
Except for Conad, which has shown vision, courage and the right amount of unscrupulousness, there are no entrepreneurs in the sector who have the human and economic resources to think big. Together with Auchan, Carrefour looked at different scenarios ranging from equity ties to asset swaps and technology partnerships.
The concern that Auchan was hiding hostile intentions behind an extremely financial and project architecture complicated have "forced" Bompard to blow up the bank. However, synergies and cost savings are tempting. So the game is by no means over.
According to Le Figaro it was almost midnight, Thursday 7 October, when Alexandre Bompard, CEO of Carrefour, informed the Mulliez family, owner of Auchan, that the deal was to be considered closed. A few hours earlier he had called a meeting of the Carrefour strategic committee. Faced with the reluctance of its major shareholders, the Brazilian entrepreneur Abilio Diniz and especially the Moulin-Houzé family, 38% of the voting rights in total and the difficulty of agreeing on valuations, the leader preferred to throw in the towel.
Despite this determination, the Auchan leaders leaked the news that the agreement was practically in the pipeline. Among other things, Alexandre Bompard had kept abreast of the various passages the Minister of Economy Bruno Le Maire. Another fact that makes you think. Postponed until spring, under elections, it would be an exceptional goal for French grandeur. A Franco-French giant capable of challenging the world and the giants of the net would certainly excite a section of the electorate. Whatever happens, we won't have to wait long to understand the sequel to the story.
It should be emphasized that, despite the good results, since Alexandre Bompard took over (mid-2017) Carrefour shares fell nearly 30%. A reason which, in itself, demonstrates the level of pressure top management is subjected to in order to try to sell the company or agree to merge with a competitor. Auchan made around € 32 billion in sales in 2020, half from France and the rest in 13 other countries. Carrefour's sales in the same period were € 79 billion, half of which came from France.
Seen from Italy, from the Rabatel plan and from the just concern expressed by the unions, this acceleration demonstrates two things. First of all, the problem is much more serious and complex than it appears. Carrefour is in trouble in Italy and it is certainly necessary to intervene decisively. Just as it is evident that part of the solution or risks of further even more negative consequences are elsewhere.
Secondly, these movements testify to the need to strengthen the management tools for reorganizations at the sectoral level, to rethink bilateralism and inter-professional funds having active policies as a landing point. It is not enough to try to to convince Carrefour to change their mind or projects. It will not be possible. Especially given the overall situation.
It should be noted that the national contract can and must contain tools to allow the management of the inevitable changes in the coming years. This requires a new awareness. Tinkering with the rear-view mirror and slogans on the one hand or simply going straight on their own way regardless of the confrontation and involvement of workers' representatives is no longer enough.
The weather is changing. For everyone.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/carrefour-auchan-italia-francia-cosa-succede/ on Sun, 17 Oct 2021 15:05:48 +0000.