French retailer Carrefour SA went a long way to reining in its huge debt after agreeing late on Thursday to sell its Colombian assets to Chile’s Cencosud SA for a higher than expected €2-billion ($2.6-billion).
The deal gave the unit an enterprise value of €2-billion and an equity value of “just under €2-billion,” a Carrefour spokeswoman said, adding the business had little debt.
Funds raised from the sale would be used to cut its net debt, which at the end of 2011 stood at €6.9-billion and finance investments in existing or developing markets, the Carrefour spokeswoman said. She did not give any breakdown.
The company did not provide any debt targets.
Analysts, however, were surprised by Carrefour’s asking price for the assets, which generated sales of €1.5-billion in the 12 months to July 30, excluding gas trading.
“Carrefour struggled to compete successfully against the market leader Exito,” Barclays said in a note. “We consider this operation is positive for the group, as it will enable it to reduce significantly its net debt.”
Espirito Santo brokerage said the price paid by Cencosud equates to 1.33 times enterprise value to sales, representing a 30-per-cent premium to where Colombia market leader Exito currently trades.
“We did not expect such a high valuation,” Oddo Securities said in a note on Friday, adding its price tag for the Colombian business was closer to €1-billion at most, in light of the company’s market share losses in that country.
French broker CM-CIC Securities estimated Carrefour’s Colombian business to be worth €1.3-1.4-billion and calculated that the premium paid by Cencosud, €650-million, represented about €1 a share.
Analysts estimated Carrefour, the world’s second largest retailer, had a market share of only 18 per cent in Colombia against 43 per cent for Exito.
In mid-morning trading, shares in Carrefour were up 6 per cent at €18.38 having lost 1.5 per cent so far this year.
Carrefour’s strategy has been to pull out of countries where it struggled to gain leadership, preferring instead to invest in markets where it was No.1 or where it saw strong growth potential, such as Brazil and China.
With the U.S. and European economies struggling, retailers Carrefour, Casino and Wal-Mart Stores Inc. have been racing in recent years to invest in Latin American countries which rebounded after the global credit crisis.
But in the battle for growth in Colombia, Carrefour surrendered to competition from Exito, which is controlled by France’s Casino.
Carrefour has embarked on a major restructuring under new chief executive Georges Plassat and its withdrawal from Colombia follows exits from Greece in June and Singapore in August.
Other countries under review could include Turkey, Poland, Indonesia, Romania, Malaysia and Taiwan, analysts say, with Britain’s Tesco PLC, France’s Groupe Auchan SA and U.S. giant Wal-Mart seen as potential buyers of eastern European assets.
Chile’s Cencosud, which listed on the New York Stock Exchange earlier this year, recently purchased Brazilian supermarket chain Prezunic and Chilean department store Johnson’s, and also has operations in Argentina and Peru.
The Carrefour deal will give it 72 hypermarkets, 16 convenience stores and four cash-and-carry stores in Colombia, adding to the some 900 stores and 26 commercial centres it operates in the region. It expects to close the deal by the end of the year.