Alain Bouchard raced to save one of the biggest takeover attempts ever by a Canadian company from swift political death. It wasn’t to be.
The founder and executive chairman of Laval, Que.-based convenience store chain Alimentation Couche-Tard Inc. was in Paris Friday with a small team attempting to salvage the company’s US$20-billion equity bid for French grocer Carrefour SA, which was opposed by the government of French President Emmanuel Macron. In the end, the effort fell short.
The two companies confirmed in a joint statement Saturday afternoon that talks in a friendly deal instigated by Couche Tard had broken off. Instead they said they would explore “opportunities for operational partnerships,” including sharing best practices on fuel and pooling purchase volumes.
Behind the scenes, Quebec’s political leaders had been working their phones to smooth the waters for their corporate champion in any way they could. With an estimated total deal value topping US$35-billion including debt, it would have been the second biggest takeover ever by a Canadian company after Enbridge’s US$43.1-billion purchase of Spectra Energy in 2016, according to data from Refinitiv Eikon.
Senior management of the two companies had reached an agreement in principle on a tie-up, according to Quebec Economy and Innovation Minister Pierre Fitzgibbon. But the Macron government stood firm in its opposition to a takeover, saying it intends to ensure the security of its food sector.
“Food security is strategic for our country so that’s why we don’t sell a big French retailer,” Mr. Le Maire told BFM TV. “My answer is extremely clear: We are not in favour of the deal. The no is polite, but it’s a clear and final no.”
France’s opposition highlights just how sensitive the issue of food supply has become amid the COVID-19 pandemic as governments seek to protect the integrity of their essential goods and services. For Quebec, it’s also a reversal of the existential angst that has popped up in recent years when homegrown companies have been takeover targets. This time, they were the predator and not the prey.
Couche-Tard shares gained 4.7 per cent in heavy afternoon trading Friday, to close at $37.98. They’ve lost about 8 per cent since the end of day Tuesday, when Couche-Tard and Carrefour both confirmed that discussions were taking place. Investors are still struggling to understand the logic of a deal.
The French government’s intervention sparked disquiet in some business circles given the sector has not previously been seen as a crown jewel. Some politicians and bankers said the pushback could tarnish Mr. Macron’s pro-business image, while others highlighted that the COVID-19 pandemic had forced more than one country to redefine its strategic national interests.
“In France, you can’t buy whatever you want without the government getting involved,” and an experienced acquirer like Couche-Tard was keenly aware of that, said Louis Hébert, a mergers and acquisitions specialist at Montreal’s HEC business school. “The state’s response here, even if it wasn’t totally predicted, was at least predictable.”
A deal between Carrefour and Circle K operator Couche would create a transatlantic retailing goliath with about 26,500 shopping outlets of various sizes and annual revenues topping $140-billion.
Despite France’s rhetoric, the companies and their advisers continued to talk and work through Couche-Tard’s proposal. Political considerations aside, “the chances are very high” that a deal can get done, Mr. Fitzgibbon told reporters in a conference call Friday.
“It looks like there is a meeting of the minds in terms of the shareholders when you look at the complementarity that Couche-Tard could bring to Carrefour,” Mr. Fitzgibbon said, adding that he spoke to Mr. Bouchard on Thursday before the chairman flew to France. “From a business perspective, I think that it’s still on.”
The apprehension that France has about food security is legitimate, Mr. Fitzgibbon said. “I think that needs to be addressed and it’s for Mr. Bouchard to do it.”
Couche-Tard’s chairman was set to meet with Mr. Le Maire in Paris on Friday, a French Finance Ministry spokesman said. European media reports said the Canadian company was prepared to offer several commitments as part of the deal, including making €3-billion ($4.62-billion) worth of investment in Carrefour over five years and preserving existing jobs for two years.
Mr. Fitzgibbon said he was also speaking to Mr. Le Maire on Friday and has also been in touch with Roland Lescure, a French banker who represents French residents overseas in the national assembly. Premier François Legault could also reach out to Mr. Macron, he said. The purpose of those discussions would be to reassure their French counterparts that Couche-Tard is a “good corporate citizen” and reaffirm the close ties between Quebec and France, he said.
Prime Minister Justin Trudeau was asked about the prospects for a deal Friday and said Ottawa’s role is “to be there to support Canadian companies including as they look to expand around the world.” He said he spoke earlier this week to Mr. Macron about the need to work together on a range of issues but didn’t specify whether Carrefour was discussed.
For France, however, a deal was a non-starter. The country has the power to review proposed takeovers of domestic companies it considers to be strategic by foreign-based buyers, including energy and telecom firms. It has been broadening the scope of industries that can fall under review, and last year added agricultural product and food distribution to the list.
“We have the legal tool available to us [to block the deal], even if I would prefer not to have to use it,” Mr. Le Maire told BFM TV. “What’s at stake is the food security of our country ... especially after the [COVID-19] health crisis has taught us how no price can be put on it.”
Some analysts rejected that view.
“I do not believe that food safety depends on the nationality of a food retailer,” said Fabienne Caron, a food retail researcher at financial services firm Kepler Cheuvreux, noting that German discount grocer Lidl has a 6-per-cent market share in France while Carrefour itself holds a piece of the grocery store supply in Brazil. “A food retailer cares for its customers as those vote with their feet. Today consumers want local and organic product and this is on offer everywhere.”
Carrefour employs about 105,000 people in France working in stores ranging from big suburban hypermarkets to small convenience outlets. Although it holds just under 20 per cent of France’s groceries market, behind rivals such as Leclerc, it is the country’s largest private employer, further increasing the sensitivity of a takeover for the government.
Roughly half of Carrefour’s hypermarkets, big-box stores that sell other goods as well as groceries, are unprofitable, according to BFM. And France’s political class fears that Couche-Tard will close the weakest stores in a bid to increase financial performance.
History shows France has had a heavy hand when it comes to major deals involving homegrown businesses, and its unions also hold a lot of sway. The French government tends to assert its influence by owning stakes in companies it considers strategically important, and policy makers have a history of being vocal about deals they do not like.
In 2014, the French government came out against General Electric Co.’s proposal for Alstom SA’s power division, arguing for a “balanced partnership” instead of a takeover. More recently, the government opposed a deal by utility Engie SA to sell a €3.4-billion stake in French water and waste group Suez.
However, the French government does not always get its way. In the case of Alstom, the deal ultimately went through – though GE had to sell some of the assets to an Italian rival. As for Engie, the sale was also completed, but took longer to close after the deal deadline was extended.
The denouement marks the second major takeover attempt by Couche-Tard that has petered out in less than a year. Last April the company suspended efforts to acquire Caltex Australia Ltd., now known as Ampol Ltd., saying the target’s business prospects had become clouded by the pandemic.
Couche-Tard hasn’t made a major acquisition since buying Texas-based CST Brands Inc. for US$4.4-billion in 2017.
With a report from Reuters
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