Tue, Jun 25, 2019 - Page 10 News List

Carrefour sells control of China business

STEEP DISCOUNT:Under the deal, which will need regulatory approval, the French firm will retain a 20 percent stake and two seats on the unit’s seven-member board

Bloomberg

Carrefour SA has agreed to sell an 80 percent stake in its China unit for 4.8 billion yuan (US$698 million) in cash to local retailer Suning.com Co (蘇寧易購) as it rethinks its exposure in the world’s No. 2 economy after years of decline.

The yielding of control comes after a long search for a partner for the French company’s struggling Chinese operations.

Once the premier foreign supermarket chain locally, it failed to adjust to the onslaught of e-commerce in recent years and sales slumped.

The shares rose as much as 2.9 percent early yesterday in Paris.

Carrefour will retain a 20 percent stake and two seats out of seven on the China unit’s supervisory board, it said in a statement on Sunday. Keeping that stake will allow it to maintain a foothold in an innovative retail market, a company spokeswoman said.

The transaction represents an enterprise value of 1.4 billion euros (US$1.6 billion) for Carrefour China, which generated net sales of 3.6 billion euros or 28.5 billion yuan last year.

The valuation of Carrefour’s China unit at 0.2 times its sales for last year — compared to an industry average of 0.8 times — is at a “significant discount to peers likely due to poor financial results,” Citigroup Inc said in a note yesterday.

“The consolidation in store network, supply chain, logistics and membership could improve efficiency and profitability for both parties,” the Citi note said.

A growing number of European and US retailers are either scaling back their presence or tying up with local partners in order to stay competitive in China, where e-commerce penetration is one of the highest globally.

Walmart Inc, which has a network of about 400 supermarkets, relies on JD.com Inc (京東) for its delivery service, while Germany’s Metro AG is said to be trying to offload a majority stake in its local business.

Carrefour’s China sales declined about 10 percent last year to 3.6 billion euros, the company’s annual report showed.

Earnings before interest, tax, depreciation and amortization were 66 million euros or 516 million yuan last year. It operates 210 hypermarkets and 24 convenience stores in China currently.

For Nanjing-based Suning, primarily an electronics retailer, the deal will help it cut procurement and logistics costs and boost profitability, it said on Sunday.

Its Shenzhen-listed shares yesterday rose as much as 6.5 percent in early trading as investors rewarded the retailer for closing the deal at a low price.

Alibaba Group Holding Ltd (阿里巴巴) holds a 20 percent stake in Suning and the two companies are closely allied. The Carrefour deal is likely to strengthen Alibaba’s foothold in the fiercely competitive groceries market in China.

The acquisition has been cleared by Carrefour’s board and is expected to close by the end of this year, but still needs approval from Chinese regulators, the companies said.

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