Carrefour share rise as Arnault, Colony control 9.8%
Carrefour share rise as Arnault, Colony control 9.8%
LONDON (MarketWatch) -- Shares of Carrefour, the world's second-largest retailer, gained as much as 5% on Wednesday after Groupe Arnault and U.S. private-equity group Colony Capital said they now control 9.8% of the company.
In a joint statement, the groups said they have acquired 64 million Carrefour shares through a 50-50 joint venture, representing 9.1% of the firm's capital. An additional 0.7% of Carrefour is held by Axon Capital, with which Arnault and Colony are acting in concert.
"The long-term investment rationale is strategic and industrial," Arnaud and Colony said, adding they believe that the retailer has "strong potential for growth."
"In this context, both investors expect to work alongside the Halley family and the company's management," they concluded.
The news reignited speculation that a leverage buyout of the 38 billion-euro ($49.4 billion) company may be in the works. Recent reports of disagreements between Chairman Luc Vandevelde and the Halley family, Carrefour's largest shareholder with 13% of the stock and 26% of the voting rights," have added fodder to the M&A talk.
The retail sector at large has been rife with M&A speculation since a private-equity group started circling U.K. supermarket chain J. Sainsbury (SBRY) last month.
Carrefour (012017) shares were last up 2.7% in Paris morning trading. They are up 28% since a low of 43.25 euros at the close of Jan. 23 trading. Also see Europe Markets.
Colony likely to be active shareholder
Deutsche Bank analysts on Wednesday told clients they believe Arnault and Colony have no intention of bidding for the group.
"We believe this is just a strategic stake and unlikely to lead to a bid," the broker said.
UBS said it believes the Halley family and management weren't informed of the groups' intention to build such a stake ahead of the move.
Under French stock market rules, a declaration of intentions only has to be made once a 10% threshold has been reached.
Colony principally holds real-estate assets and bought 10% of hotel group Accor (012040) three years ago. It also owns stakes in various leisure and hotel companies in the U.S., Asia and Europe, including Savoy Hotels and Punch Taverns (PUB). See more global markets coverage.
Deutsche Bank said the history of Colony's stake in Accor suggests they are generally a "very active shareholder," having forced the company to cash in on the value of its property assets. It added that Colony representatives sit on the remuneration and strategy committees of the Accor board.
"For Carrefour the most obvious and immediate route to crystallization is selling the shopping-mall assets which surround many of its hypermarkets," Deutsche Bank concluded, noting they believe these to be worth around 3 billion euros.
UBS agreed that Colony is likely to have been attracted by Carrefour's property assets and is unlikely to seek a full bid.
Carrefour, whose only larger rival is Wal-Mart Stores (WMT), last month was downgraded by two different brokers. Merrill Lynch cut its rating on the stock to neutral from buy, saying it couldn't see the retailer being pushed into the arms of leveraged buyout funds but feared all the takeover speculation would prove a distraction for management.
Citigroup two days earlier had cut the stock to sell from hold, noting that the sheer size of a leverage buyout of the company makes it hard to imagine. It added that political considerations should also be heeded. The first round of the French presidential elections is only six weeks away.