Bloomberg News

Carrefour CEO Plassat Turns Dealmaker to Revive Retailer

November 01, 2012

Carrefour SA Chief Executive Officer Georges Plassat

Carrefour SA Chief Executive Officer Georges Plassat. Photographer: Bertrand Guay/AFP/GettyImages

Georges Plassat’s appointment as Carrefour SA (CA) Chief Executive Officer was welcomed by analysts and investors because of his retailing experience. Six months into the job, he’s proving a savvy dealmaker as well.

Plassat this week sold Carrefour’s Malaysian unit to Aeon Co. for 250 million euros ($324 million). That followed his announcements to exit Singapore by the end of the year and pay 220 million euros to exit Greece. The CEO’s biggest win was his agreement last month to sell Carrefour’s Colombian stores to Cencosud SA (CENCOSUD) for 2 billion euros.

“Strategically, it’s really quite clever,” Michael Dennis, an analyst at Cantor Fitzgerald in London, said of the Colombian deal. As well as selling the business for 1.3 times sales, more than three times the European food retail sector’s trading average, “he’s saving the capex to support the asset” and helping show that Carrefour’s core business is undervalued.

The CEO, who took the helm of the Boulogne-Billancourt, France-based company on May 23, is reshaping the retailer at a faster clip than his predecessor Lars Olofsson did during his three years in charge. He may just be getting started with at least three other disposals mooted.

“Plassat has recognized that radical change is needed at Carrefour,” said Natalie Berg, an analyst at researcher Planet Retail in London. By accelerating international disposals, “he’s proven he’s not afraid to take action.”

Lost France Share

Plassat’s dealmaking has already started to reverse a five- year slump in Carrefour’s shares as expectations that he will deleverage the retailer’s balance sheet increase. After falling 17 percent in the first half of 2012, Carrefour’s stock has risen 30 percent since the end of June, bringing the company’s market value to about 12.8 billion euros.

Carrefour is “a buy for Plassat’s ability to create shareholder value through portfolio rationalization and the opportunity to improve the core French business,” said Caroline Gulliver, an analyst at Espirito Santo in London.

Carrefour has been losing market share in France, where it gets about half of sales, as shoppers shun the retailer’s out- of-town superstores for rival outlets, often closer to home or online, that are perceived to offer better value for money.

To combat this and boost margins in Europe that are the lowest in at least a decade, Carrefour’s fourth CEO in eight years has prioritized generating cash and cutting debt. His plan includes exiting overseas markets the retailer doesn’t dominate.

Dia Spinoff

While Olofsson sold Carrefour’s Thai business and spun off all of discounter Distribuidora Internacional de Alimentacion SA on the Madrid stock exchange, he shelved a plan to list 25 percent of the French retailer’s property assets in Europe. The former CEO also presided over an aborted proposal to merge Carrefour’s Brazilian unit with Cia. Brasilieira de Distribuicao Grupo Pao de Acucar and canceled the sale of the French company’s Malaysian and Singaporean operations.

Plassat “is more his own man,” said Cantor Fitzgerald’s Dennis. “What he’s achieved in such a short period of time is not to get involved with the puppet strings of the major shareholders.”

Plassat, who transformed an unprofitable shoemaker into an apparel and accessories company with more than 3 billion euros in revenue while at Vivarte SA, has also shown he is prepared to make bolt-on acquisitions. Carrefour agreed this week to add 13 frozen-food outlets in Belgium, after buying 129 grocery stores in Argentina in June, moves that will strengthen the retailer, according to Espirito Santo’s Gulliver.

Malaysian Deal

More deals are likely. CT Corp. is seeking $750 million of financing to buy the 60 percent of Carrefour’s Indonesian business that it doesn’t already own, people familiar with the matter said Oct. 29.

Carrefour has also put its Polish and Turkish units under review and is considering a combination of the latter with competitor Migros Ticaret AS (MGROS), people with knowledge of the situation said in September. And Carrefour is preparing a $4.9- billion initial public offering of its Atacadao cash-and-carry unit in Brazil, Veja magazine reported Oct. 27.

Further asset disposals “will confirm that management is implementing its restructuring plan at a quick pace, while providing Carrefour with welcome room for maneuver to roll out its restructuring measures in France,” said Claire Poncet Dumont, an analyst at Credit Agricole CIB in Paris. A Carrefour official declined to comment on other possible transactions.

Low Food Prices

To be sure, even after the disposing of non-core assets, Plassat “will have to deliver on the operating side and this is likely to be the hardest part of the job in our view, given the unfavorable macroeconomic context,” said Dumont.

To fix France, where sales have barely grown in the past decade, Plassat has pledged to give more control to store managers and maintain low prices on food. His three-year plan also includes putting more non-branded goods on shelves and adding so-called drives, or pick-up points for online orders, at some outlets.

“So far, he has done the right things,” said Robert Jakobsen, an analyst at Jyske Bank in Silkeborg, Denmark with a strong buy recommendation on the shares. “But it’s of course, early times. A lot of things are still missing, a lot of details about how he wants to improve Carrefour, especially about numbers and how quickly he can improve margins.”

Still, the key issue for Plassat was to improve Carrefour’s financial flexibility, according to Arnaud Joly, an analyst at CA Cheuvreux, who estimates the retailer will generate less than 200 million euros of cash annually in the next two years.

“The group now has more flexibility to finance its turnaround measures,” said Joly.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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