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SÃO PAULO – Surprises much of the market and marks another important food retail operation in less than a month, Carrefour Brasil (CRFB3) announced at dawn on Wednesday (24) the purchase of the GRAN Group for an amount of R $ 7.5 billion. The BIG group, formerly Walmart in Brazil, has under its umbrella brands such as Sam’s Club and Maxxi attacked.
The operation encouraged investors and made the CRFB3 share rise to 16.24% in this session, closing with an increase of 12.77%, to R $ 21.73, with the assessment of a great potential to generate synergies, highlighted by the company itself. R $ 1.7 billion to Ebitda (result before interest, taxes, depreciation and amortization) three years after the conclusion of the transaction, which is still subject to approval by the Administrative Council for Economic Defense (Cade).
The transaction will be concluded with 70% of the cash value and 30% through Carrefour Brasil shares, with an advance of R $ 900 million in cash to the sellers. At the end of the transaction, the Carrefour parent company will go from 71.6% to 67.7% of participation, while the Peninsula (investment vehicle of Abílio Diniz, former controller of Pão de Açúcar) will have 7.2%. Private equity fund manager Advent, together with Walmart, will own another 5.6% of Carrefour’s shares. The remaining 19.5% will be the free float.
BIG will add 387 stores to Carrefour’s 489 stores, with 35 Sam’s Club stores (21% of sales) and as the only new format, 107 hypermarkets and about 200 supermarkets and 49 cash and carry stores (27%).
The GRAN Group still has 41 thousand employees, present in 19 Brazilian states and registered R $ 24.9 billion in gross sales in 2020. The combination will create a group with gross sales of approximately R $ 100 billion and approximately 137 thousand employees working in all formats. Carrefour highlighted in a statement, consolidating its leadership in food retail in Brazil. Analysts at Bradesco BBI, citing data from consultancy Nielsen, estimate that Carrefour’s market share will increase from around 13% to around 19%.
The Carrefour operation comes two months after the failure of the group’s merger with Canada’s Couche-Tard. When presenting the annual results, the French company announced that it will strengthen its position “where it was already present”. Brazil is the first objective of the strategy.
“Our group has gone on the offensive,” announced the company’s global CEO, Alexandre Bompard, in a statement in which he emphasizes that the operation is part of the group’s external growth strategy, based on “consolidating its presence in markets key ”, like Brazil. where Carrefour has been present since 1975. “We have increased our leadership in the food distribution market in this country for three years, which has immense prospects for development,” said Bompard.
In terms of multiples, Carrefour Brasil acquires the BIG group for 8.3 times the EV / Ebitda (Total Value of the Firm divided by the cash generation potential), a premium in relation to its own multiples, today on the 6th, 5 times EV / Ebitda, considering the result of 2020.
For UBS, although it is not “a wonderful operation”, it is an attractive business, with high synergies that significantly strengthen the company’s competitive position.
Morgan Stanley also sees the proposed transaction aligned with Carrefour’s strategy, with the company focused on high-growth formats and, given the level of desired synergies, if this transaction is approved, it would help Carrefour Brasil to consolidate its leadership in the country and its strategy. multichannel.
Also read: Carrefour does not intend to divide between cash and carry, says CEO
The strong presence of BIG in the Northeast and South regions (where Carrefour has a limited presence), finds a series of complementarities with its current operation with the Atacadão (Atacarejo) and Carrefour (proximity, Hyper, Super, Cards and Bank) cartels, With a strong presence in the Southeast region, Levante Ideias de Investimentos stands out.
If, in the short term, a very positive reaction is expected in the share price (as has already happened in this session), the expectation is to generate great value for the company in the coming years, in case of approval by the party. from Cade. , assesses the analysis team.
“We see the operation as one of the most relevant in food retail, together with the Pão de Açúcar (PCAR3) and Assaí (ASAI3) divisions”, they point out, highlighting the cash and carry division of GPA that was carried out in early March (see more by clicking here). It is worth mentioning that, in a conference call with analysts and investors this Wednesday (24), Noël Prioux, CEO of Carrefour, stated that the group does not intend to split between its multivarejo and Atacarejo businesses (at least not for the moment). . He noted that, for the company, a global ecosystem makes more sense than a divided system.
Levante also reinforces that the potential synergies with BIG come from the physical stores themselves, with stores of similar formats and recently renovated, which facilitates the rapid conversion to Carrefour posters and the maintenance of the physical quality of the properties. BIG and BIG Bom Preço (Hyper) will become Carrefour or Atacadão, Maxxi wholesale will become Atacadão in its entirety and the supermarket brands will remain, however with the addition of the Carrefour logo to maintain the knowledge of the local public where BIG is currently operating, but with an element of Carrefour brand recognition.
Morgan Stanley also assesses that Atacadão and Carrefour Brasil offer better prices for consumers compared to other competitors. Thanks to scale and synergies, this can also help BIG Group achieve more competitive prices for customers.
In addition, it will add to its portfolio of two formats that the company does not currently operate, the Wholesale Club and differentiated products, aimed at classes A and B (Sam’s Club) and the TodoDia banner, a proximity store with a soft discount, which aims to punctual and aggressive promotions aimed at inventory turnover.
Sam’s Club has a margin superior to the entire operation and currently has more than 2 million subscribers in a single operation format in the country. TodoDia, for its part, offers penetration in very specific regions with different demands, which facilitates Carrefour’s entry into new geographical areas, without friction in the operation, they assess.
In addition, the company will be able to incorporate BIG operations into its integrated digital system, with discount and purchase applications, expansion of Banco Carrefour’s customer base with greater potential for the issuance of new cards, as well as integrated logistics, with expansion of deliveries and in more locations, with the multi-channel purchase modality (click and remove, same day delivery, purchases and express deliveries).
“One of the most important and relevant details of the transaction, in our opinion, in addition to the combined size of the companies, is the gain in operating efficiency that is very visible from the front, both in terms of sales and in terms of costs. ”Says Levante.
Another positive point, and pointed out by Carrefour himself, is the real estate asset base of the Great group, between land and finished buildings, with a value close to R $ 7 billion and additional potential to be explored in the future for organic expansion . or even sale.
Growing expectations
Evaluating the business as positive and considering that it was a transaction in terms of value, in addition to adding new paths to the growth of the retailer, Bradesco BBI points out that the operation may lead to a 20% increase in its estimates of earnings per share in the Approved third year of operation. The current recommendation for assets is higher (performance above the market average), with a target price of R $ 28, or a potential increase of 45.3% compared to the previous day’s close.
BTG analysts, assuming full value synergies and a three-year term to capture, calculate an addition of R $ 12 in the Carrefour share or the net present value of the company of R $ 25 billion.
“The acquisition is expected to alleviate some of the concerns investors have faced with increasing competition, particularly in the Cash & Carry segment, in particular due to BIG’s resurgence after its acquisition by Advent. Clearly there will be challenges, with the continuous execution of the GREAT recovery being the main one ”, evaluates BBI.
It’s worth remembering that BIG’s sales move marks a strategic exit for Advent, which two and a half years ago acquired all of Walmart’s operations in the country and made a financial and operational change. The initial idea was to open the Great Group (IPO), but the market was not so favorable for the movement.
The expectation is that Cade will also analyze the business in detail. However, analysts estimate that, given Carrefour’s experience with the Makro acquisition, it is unlikely that the company would have signed the deal if there was a high probability of major and bitter “remedies” from the municipality.
Currently, according to a Refinitiv compilation with 13 analysis houses that cover the CRFB3 document, 8 of them have a buy recommendation for the asset, while 5 have a neutral recommendation. Its peer in the industry, PCAR3, has 11 buy recommendations and 3 neutrals. However, with the recent operations of both companies, revaluation may occur for the sector.
XP adjusted the target price from R $ 25 to R $ 28 per share, incorporating the acquisition in the target price and the results of the fourth quarter in our figures, but maintaining the neutral recommendation since they see the transaction practically reflected in the screen price while synergies should only be captured from next year. “Although we do not work with this as a base scenario, we understand that there is a risk that the transaction is not completed, which would bring our target price to R $ 24 per share,” the analysts say.
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