Couche-Tard in talks with French grocer Carrefour about potential deal

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Canadian convenience store giant Alimentation Couche-Tard Inc. says it has approached French grocer Carrefour SA with a view to striking a friendly transaction in what would be a significant shift in strategy for the Circle K brand owner.

Couche-Tard said in a statement late on Tuesday it has initiated “exploratory discussions” with Carrefour about a deal, the terms of which are still subject to discussion. At this stage, it is unclear whether the talks will result in an agreement or transaction, the company said. Carrefour also confirmed “very preliminary” discussions were under way.

The structure of a possible deal was not disclosed, but the discussions centre on Couche-Tard buying Carrefour in its entirety and divesting assets as necessary, said a person familiar with the matter. The Globe is not identifying the source as they were not authorized to speak to the media.

Taking over supermarket operator Carrefour would be a major bite for Couche-Tard to swallow. Carrefour shares have climbed 10 per cent in trading on the Paris Stock Exchange this year, pushing up the company’s market capitalization to 12.6 billion euros (about US$15.4-billion). Couche-Tard, one of Canada’s biggest companies by revenue, has a market value of $47-billion (US$36-billion).

It would also be a sharp turn in strategy for the Laval, Que.-based company and its chairman, Alain Bouchard. Couche-Tard has ballooned from a regional convenience store chain to a global titan through savvy acquisitions and organic growth. But it has focused almost exclusively on convenience stores and gas stations. Adding a grocery operator of this size would take it into largely uncharted territory, even if both businesses sell food.

Couche-Tard hasn’t made a major acquisition since buying Texas-based CST Brands for US$4.4-billion in 2017. But that hasn’t stopped it from looking.

Japan’s Seven & i Holdings Co., the world’s biggest convenience-store operator, agreed last fall to buy Marathon Petroleum Corp.’s Speedway chain for US$21-billion. Couche-Tard was also in the running for Speedway, a source with knowledge of the matter told The Globe and Mail, but apparently balked at the price, which values Speedway at 13.7 times earnings before taxes, depreciation and amortization.

Couche-Tard also made a non-binding, US$5.8-billion play for fuel retailer Caltex Australia Ltd., now known as Ampol, last year, but suspended the effort after the COVID-19 pandemic made Ampol’s prospects and cash flow uncertain. That situation hasn’t improved, and Couche-Tard now appears to have moved on.

More recently, Couche-Tard did a small but strategic acquisition in Hong Kong that it is betting will jump-start its future expansion in the region. The company in November agreed to buy Convenience Retail Asia Ltd. for roughly US$360-million.

While visibility “became cloudy” on the merits of a Ampol transaction, other deals will almost certainly present themselves, Couche-Tard chief executive officer Brian Hannasch told The Globe and Mail in May. Takeover multiples, which show what an investor is willing to pay per dollar of earnings, are just one element of a convenience store sector poised for transformation in the months ahead, he said at the time.

“We’re sitting here with a good cash position. And if there are interesting assets or companies at the right price and the timing makes sense … we’re ready,” Mr. Hannasch said. He said the pandemic would open up new takeover opportunities.

Carrefour Group operates 12,300 stores of various sizes in more than 30 countries but is concentrated in Europe, where it runs 2,800 supermarkets and about 700 larger-scale hypermarkets. It also owns a network of smaller convenience stores with sales areas of 200 to 900 square metres under Proxi and other names. The company expects to open 3,000 convenience stores by 2022, according to its website.

Carrefour booked sales of 80.7 billion euros in 2019. It employs about 320,000 people.

“This would be a fixer-upper acquisition” for Couche-Tard, said Brian Madden, senior vice-president and portfolio manager with Toronto-based Goodreid Investment Counsel, which holds Couche-Tard shares. “Carrefour has been struggling for twenty years, and has never eclipsed its stock price high from the turn of the century. If Couche-Tard were to acquire the convenience stores on favourable terms though, I think the market would welcome the transaction.”

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