(Bloomberg) -- Carrefour SA is buying Walmart Inc.’s former Brazil unit to cement its position as the country’s largest supermarket operator two months after being the target of a failed takeover bid.
Advent International and Walmart agreed to sell Grupo BIG Brasil SA for about 1.1 billion euros ($1.3 billion), Carrefour said Wednesday. Brazil is already the French retailer’s second-largest market, and the deal would make that business almost as big as its European operations outside of France.
Chief Executive Officer Alexandre Bompard is embarking on his biggest acquisition to date after the French government blocked a takeover attempt by Canadian convenience store operator Alimentation Couche-Tard Inc. The Brazilian business has been one of Carrefour’s most successful units in recent years, despite high inflation. Adding Grupo BIG strengthens Carrefour in the northeast and south of Brazil as the country grapples with a surge in Covid-19 cases.
“We’re on the offense,” Chief Financial Officer Matthieu Malige said in a Bloomberg TV interview, adding it’s a move for the long term. “Brazil has very appealing economic and retail prospects.”
Together Carrefour and Grupo BIG operate 876 stores in Brazil and have about $18 billion in annual revenue.
Shares of Carrefour rose as much as 2.4% in Paris. They have dropped about 14% since Couche-Tard announced its approach in mid-January, which brought the stock close to a three-year high.
Carrefour has been active in Brazil since 2007, when it bought discount superstore operator Atacadao for $1.1 billion. Atacadao’s adjusted earnings rose 18% before interest, taxes, depreciation and amortization last year.
What Bloomberg Intelligence Says
Carrefour’s proposed acquisition of Grupo Big, Brazil’s No. 3 retailer, would cement subsidiary Atacadao’s leading market position, especially in hybrid cash & carry, with potential synergies of 1.7 billion reals given the latter’s superior operating metrics. The 7 billion-real enterprise value cost of 7.5x 2020 Ebitda reflects the 4.3% Ebitda margin, compared with Atacadao’s 7.8%. The anticipated one-year competition review may result in local asset disposals, ideally from the acquired unit.
--Charles Allen, BI Senior Retail Analyst
Through the deal, Carrefour will operate a premium chain under the Sam’s Club format in Brazil through a license with Walmart. The company will also convert Grupo BIG’s Maxxi stores to its Atacadao banner.
Walmart took a step away from Brazil in 2018 when it sold a controlling stake in Grupo BIG, Brazil’s third-largest food retailer, to Advent. Grupo BIG filed to hold an initial public offering in October.
The acquisition, which is subject to Brazil antitrust approval and is expected to complete in 2022, will be realized 70% in cash and 30% through new Carrefour Brazil shares. After the deal, Carrefour would own 67.7% of its Brazil unit, while Advent and Walmart would have a combined 5.6% stake.
In November, Carrefour faced a scandal in Brazil after a video went viral showing security guards beating a Black man to death in one of its stores in Porto Alegre. The French retailer has said it’s supporting the family of the victim and seeking those responsible to be brought to justice. It also developed an action plan to fight racism and pledged to stop outsourcing security.
(Updates to add CFO comment in fourth paragraph. A previous version of this story was corrected to fix the stake that Advent and Walmart will hold)
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