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How Couche-Tard’s ambitious bid for France’s Carrefour was cut down

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Every January at the glittering Palace of Versailles, President Emmanuel Macron hosts a conference called “Choose France” to convince the heads of big multinationals that there is no better country to invest in.

Yet when one of Canada’s biggest companies, Alimentation Couche-Tard, made such a choice last week with a €16.2bn bid for French supermarket chain Carrefour, the government moved decisively to extinguish the chance of a deal.

Just 24 hours after the companies revealed they were in talks, French finance minister Bruno Le Maire declared his opposition, calling Carrefour “a key link in the chain that ensures the food security of the French people”. With its grip on a deal slipping, Couche-Tard, a $33bn group which operates convenience stores and petrol stations in North America and Europe, scrambled.

Alain Bouchard, its billionaire founder and chairman, flew into Paris for a meeting to persuade Mr Le Maire that the company would be a good owner for Carrefour, while Canadian politicians, including Quebec’s economy minister, worked the phones. 

It was to no avail. The 72-year-old entrepreneur was sent packing back to Laval, Québec where he founded Couche-Tard, best known for its Circle K chain, in 1980. Late on Saturday, the companies admitted the talks were off, but insisted they would examine operational partnerships.

The shortlived drama riveted the French business elite, while briefly holding out the promise of a payday for some of the top investment banks and law firms in Paris. Couche-Tard was advised by Rothschild, where Mr Macron worked from 2008 to 2010. Rival Lazard advised Carrefour.

The saga has also reignited a debate over whether France is as open for business as Mr Macron once promised. By branding a Couche-Tard takeover as a risk to France’s “food sovereignty”, some executives and bankers are worried the government has done lasting damage to its ability to attract foreign investors.

Breakdown of the retail groups: Carrefour vs Couche-Tard

“How can you tell me France is investor friendly and go and do something like this?” said one person involved in the deal. “Protectionism may be politically popular but it is bad for the country in the long run.”

A far-fetched plan

Despite a reputation for protectionism, it is relatively rare for France to block a foreign takeover. In recent years, steelmaker Arcelor, telecom gear specialist Alcatel-Lucent, cement giant Lafarge, and energy group Technip were all snapped up by buyers from outside France. The country was Europe’s top destination for foreign direct investment in 2019, according to a study by EY.

One longtime ally of Mr Macron and adviser to many French companies said the failure of Couche-Tard’s gambit owed more to bad timing than any fundamental change of approach in the Elysée. France was still attractive for investors, the person argued, pointing to labour reforms and tax cuts passed by Mr Macron’s government. 

Alain Bouchard, Couche-Tard’s billionaire founder and chairman
Alain Bouchard, Couche-Tard founder and chairman, flew into Paris for a meeting to persuade the French finance minister that the group would be a good owner for Carrefour © Canadian Press/Shutterstock

“The idea that the government would stand by while the biggest private employer in France was sold to a foreign buyer in the middle of a pandemic and one year before a presidential election is simply far-fetched,” the person said.

“Carrefour is a very visible asset in France — everyone from the labour unions to the farmers who supply their milk, cheese, and meats would have been up in arms,” they added.

Anticipating such concerns, Couche-Tard had planned to allay them by pitching the deal as a way to forge a French-speaking global retailing powerhouse better armed to compete with Amazon. It pledged to invest €3bn over five years, not cut jobs for two years, and to maintain dual listings in Toronto and Paris, according to people close to the group.

Given how foreign takeovers can quickly turn political in France, companies sometimes quietly run deals by officials to gauge their reaction. In 2005, PepsiCo was rumoured to be weighing up a bid for yoghurt maker Danone, prompting the then Prime Minister Dominique de Villepin to vow to protect the company in the name of “economic patriotism”. A bid never materialised.

Column chart of Revenues (€bn) showing Couche-Tard and Carrefour sales

Months later, France passed a decree giving the government the ability potentially to block takeovers by foreign buyers in sectors deemed strategic, such as defence and security. It is a definition that has steadily broadened to include energy, water and telecoms. In 2019, “food security” was added, creating the legal tool that would eventually thwart Couche-Tard.

Pascal Bine, an M&A specialist at law firm Skadden, Arps, Slate, Meagher & Flom, said the Covid-19 crisis had made the government more willing to block takeovers that could threaten the country’s supply chains. In December, it rejected US group Teledyne’s bid to buy Photonis, a maker of night vision goggles for military use.

Couche-Tard is best known for its Circle K brand
Couche-Tard is best known for its Circle K brand © Chris Helgren/Reuters

“With the health crisis, there is a new doctrine emerging on foreign investment in France. More attention is being paid to ensure that France has supplies of key goods like medical equipment and food, and the proposed Carrefour deal does raise questions about sovereignty,” Mr Bine said.

“Legally nothing has changed but culturally something has . . . do not forget that the 1789 revolution started in part over bread shortages,” he added.

With the pandemic’s disruption hitting share prices, other countries have also been uneasy about potential foreign takeovers. The UK in November expanded its ability to review takeovers of any size in 17 key sectors, while the EU has sought similar new powers and voiced concerns over state-backed Chinese buyers.

Carrefour’s unwanted discount

If the French government could not stomach the Couche-Tard deal, Carrefour’s board and management were open to considering it.

Instead, Carrefour’s chief executive Alexandre Bompard will have to keep cutting costs to improve profits, while trying to stem a multiyear decline in sales at its large-format stores, known in France as hypermarkets. The company’s shares were down 6 per cent on Monday.

Line chart of Forward 12m price-earnings multiple (x) showing Carrefour trades at a discount to peers

Three years into a five-year turnround plan, Mr Bompard has earned credit for selling assets in China and expanding the group’s ecommerce business. But with most cost savings going to pay for restructuring, margins have barely budged.

Carrefour stock has long traded at a discount to those of other big food retailers like Tesco or Walmart, reflecting the intense competition in France, where it still earns half its sales. With a 20 per cent market share, it is the second-largest player in France behind privately owned E Leclerc.

Fabienne Caron, analyst at Kepler Cheuvreux, said that closing the valuation gap will be that much harder now that a foreign takeover is off the table and regulators have previously frowned on domestic consolidation. “The key lessons of this week is that no foreign company can buy a French food retailer, and that Carrefour is up for sale,” she said. 

The lessons have not been lost on Carrefour’s three largest shareholders, who together control about 23 per cent of the stock. The group includes France’s richest man, LVMH founder Bernard Arnault, and the Moulin family behind department store group Galeries Lafayette.

They were open to selling their stakes to help the Couche-Tard deal, according to people familiar with the matter.

They were displeased with the government’s intervention, said one person familiar with their thinking, especially because they have long supported Mr Macron. Spokespeople for Mr Arnault and the Moulin family declined to comment.

Although painful, Couche-Tard’s French snub is unlikely to dent its ambitions. Under Mr Bouchard, the group has completed almost 40 takeovers over the past decade in the fragmented convenience store sector. The relentless dealmaking had, by 2019, made it Canada’s largest publicly traded company by revenue. 

Carrefour chief executive Alexandre Bompard
Carrefour chief Alexandre Bompard has earned credit for selling assets in China and expanding the ecommerce business, but most of the cost savings have gone towards paying for restructuring © Christophe Morin/Bloomberg

Couche-Tard’s move for Carrefour was aimed at cutting its heavy reliance on petrol sales, which are expected to decline in the coming decades as electric vehicles become widespread.

A solid balance sheet certainly gives the company the license to go shopping. According to Barclays analysts, the group’s net debt-to-ebitda ratio for 2020 was 0.9 times and is projected to be 0.5 times this year.

Stephen Groff, a portfolio manager at Cambridge Global Asset Management which owns Couche-Tard shares, said the group’s record has earned it the right to hunt for a major deal — even if the approach for Carrefour came as a big surprise.

“They’re a very effective operator with a decentralised mindset that’s enabled them to adapt to very different market conditions around the world,” he said.

But “shareholders are likely to want to get further clarity on what their long-term ambitions are given this is a different path than what many may have expected.”

Additional reporting by Kaye Wiggins in London



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Putin and Lukashenko’s ski fun shows cold shoulder to EU

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As news of new EU sanctions against Russia began to leak out of a meeting of bloc foreign ministers on Monday afternoon, Vladimir Putin and his Belarusian counterpart Alexander Lukashenko were discussing a different challenge to the Russian president.

“You can try to compete with Vladimir Vladimirovich,” Lukashenko, in ski gear, said to his son, Nikolai. “But you probably won’t catch up,” he added, with a smile to Putin as the Russian leader pushed off down the slope.

Putin and Lukashenko are the men behind Europe’s two repressive crackdowns over the past six months, who have both jailed or exiled their most prominent opponents and seen their security forces violently assault and detain thousands of peaceful protesters.

But in a summit in the snow-covered mountains of Sochi, on Russia’s southern coast, they revelled in their twosome of leaders shunned and sanctioned by Brussels, in a calibrated message to the EU that the cold-shoulder was mutual.

For foreign policy experts there were few details to digest, despite the complex negotiations going on behind the scenes as the two post-Soviet states seek to recalibrate their future relationship.

Putin is keen to deepen integration on Moscow’s terms. Lukashenko is desperate for Russian investment and trade co-operation but is loath to relinquish sovereignty. Yet in place of diplomatic negotiations and policy pronouncements, photographs and video footage of the two leaders enjoying each other’s company were in full display.

At the outset, Putin, in jeans and an open-collar shirt and blazer, greeted his guest with a handshake and a hug. “Even our appearance, clothes and so on, suggest that these are serious negotiations in ordinary clothes,” Lukashenko quipped. “It suggests that we are close people.”

Pleasantries exchanged, it was time for the salopettes and ski boots, and a shared chairlift to the summit. Putin, pushing off confidently, set off down the gentle slope, Lukashenko in his wake.

After a short ride on snowmobiles back to their chalets, discussions continued over more than six hours — and what appeared to be three different sized wine glasses.

“The optics for the international audience is that they have been able to maintain their positions and nothing can be done against them,” said Maryia Rohava, a research fellow at Oslo university specialising in post-Soviet relations.

“Now we’re talking not just about sanctions against Belarus but also against Russia,” she added. “And it seems like they look at that like, ‘Well, we don’t care . . . We’re just enjoying our winter break like autocrats do.’”

To be sure, the fun on the slopes was not wholly without power games. Putin was clear to underscore he was the senior partner, from wrongfooting his guest at the top of the ski lift to releasing photographs of their meeting showing Lukashenko scribbling notes as his host spoke.

But the mood music was in sharp contrast to Lukashenko’s last visit to Russia in September. Then, with protests raging and the Belarusian leader’s position looking shaky, Putin reprimanded his guest for mishandling the unrest and risking the toppling of an ageing post-Soviet regime that could weaken his own.

Then, in a businesslike and cold atmosphere, Lukashenko pleaded with Putin that “a friend is in trouble” and was granted a $1.5bn loan from Moscow — but not before his host remarked that Belarusian people should be given a chance to “sort this situation out”.

The absence of such language on Monday also sent a subtle signal to other illiberal regimes, particularly those on the outer rim of Europe who, like Belarus in the past, find themselves lured towards Brussels by economic opportunities but repelled by the reforms and democratic standards demanded in exchange.

The message to the likes of Georgia, Moldova, Armenia and Turkey is that Putin, whose relations with the EU are at rock bottom, is always ready to talk.



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Mitsubishi Motors set to reverse move to withdraw from Europe

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Mitsubishi Motors is set to reverse its decision to withdraw from Europe and build cars in France after months of pressure from Renault and Nissan, in a sign of fresh rifts within the alliance.

Mitsubishi will formally consider the move at a board meeting on Thursday, according to three people with direct knowledge of the matter, following months of fractious discussions with its alliance partners.

A framework agreement between the three carmakers was reached on Monday during an alliance meeting, two of the people said. They added that the deal may still fall apart.

The decision to have Renault produce Mitsubishi cars at its French factories in a manufacturing deal, if finalised, would force the Japanese company to justify the U-turn — and face down accusations it yielded to a Renault campaign to protect French jobs.

The coalition between the three car groups is held together by Renault’s 43 per cent stake in Nissan, which owns 34 per cent of Mitsubishi, the smallest of the companies.

The French government’s 15 per cent stake in Renault has fed longstanding fears at the two Japanese carmakers that alliance strategy would be heavily influenced by French industrial politics.

In July Mitsubishi announced plans to in effect pull out of its lossmaking operations in Europe by cancelling model launches and running down its current line-up. This would lead to the end of all car sales in European markets as early as this year.

Following the announcement, some dealerships have already sold operations in preparation for Mitsubishi’s exit, while others are preparing to become repair garages for the brand instead.

An agreement to build Mitsubishi cars in France would be held up internally as a sign the Renault-Nissan-Mitsubishi Alliance was working under new management teams installed after the arrest and ousting of former boss Carlos Ghosn in 2018.

But people within both Mitsubishi and Nissan have expressed concern about such a deal that would mean Renault building Mitsubishi cars — increasing work for its French plants and providing a political boost in the country, where it is cutting jobs. 

Executives were particularly worried about a potential repetition of Renault’s 2001 decision to move the Nissan Micra from the Japanese group’s Sunderland plant to its own underperforming Flins factory outside Paris. This was seen as a political move by the French group to shore up union support.

Mitsubishi said there was no change in its policy to halt development of new models in Europe.

Nissan and Renault said they would not comment “on speculation”. Renault added the alliance always “aims to enhance competitiveness and enable more effective resource-sharing for the benefit of all three companies” and that there “are always ongoing discussions between the three companies”.

Last month, Renault chief executive Luca de Meo suggested in an interview with the Financial Times that a deal could be done, saying: “We have space in our plants; we have platforms.”

De Meo also suggested that Renault could end up building more cars for Nissan in its French plants, something that was resisted by Nissan, according to people familiar with the discussions. That led to pressure being applied to Mitsubishi by both sides of the alliance, the people said.

Before last year announcing its withdrawal, Mitsubishi sold just 120,000 cars in Europe in 2019, giving it less than 1 per cent market share.

The tentative agreement reached on Monday is the first big deal between de Meo, who joined Renault as CEO last summer, and the heads of Nissan and Mitsubishi, and a test of the relationship between the three sides.

Nissan and Renault are focusing on turning round their own businesses as well as repairing the alliance, which came near collapse in the wake of the turmoil that followed Ghosn’s ouster.

De Meo announced a scheme to save €3bn by cutting factory capacity as part of a company overhaul last month, while Nissan aims to save ¥300bn ($2.85bn) through its own turnround plan.



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What Mario Draghi’s appointment as Italian PM means for fintech

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Mario Draghi’s surprise appointment to lead a national unity government in Italy was welcomed by financial markets and political experts alike last week. The former European Central Bank chief has promised an ambitious programme of reforms, and fintech is expected to be a key part of the plans.

In his first address to parliament on Wednesday, Draghi pledged to invest a large share of the money Italy receives from the EU Recovery Fund in digital infrastructure and technological upgrades. Vittorio Colao, the former chief executive of Vodafone, has been appointed minister for innovation and digital transition.

Last year, Italy was one of the worst performers in the EU’s Digital Economy and Society Index, which tracks the digital competitiveness of member states — with only Romania, Greece and Bulgaria further behind.

Colao has yet to unveil the details of his plans, but he is expected to focus on extending high speed internet access across the country and passing legislation to encourage the use of digital payment methods. He outlined similar priorities last year in a 53-page recovery and resilience plan that was ultimately ignored by the previous government.

“Draghi’s focus on innovation . . . is undoubtedly good news for the fintech sector and the appointment of minister Colao is a clear message of a strong push on the [tech and innovation] agenda,” said Corrado Passera, chief executive of digital bank Illimity and a minister in Italy’s last technocratic government.

Digital payments have long been seen as a way to combat tax evasion in Italy, where an estimated €130bn, or 8 per cent of GDP, escapes tax authorities each year.

Successive governments have encouraged the shift from cash to cards, and payments companies have been among the country’s most successful within Italy’s fintech sector, with companies like Nexi becoming continental players. 

Less than 40 per cent of all payments in Italy were digital before the coronavirus pandemic, but experts believe that the combined impact of Covid, plus the arrival of the EU funds, will drive further change.

The pandemic caused some strain for Italian banks and insurers whose relationships with customers are still often based on branches, according to a recent report by PwC. Sudden lockdowns and prolonged working from home “forced experimentation of new ways of collaborating remotely through digital solutions”, encouraging traditional institutions to try more partnerships and strengthen collaboration with younger tech-focused companies. 

However, the sector has continued to face challenges despite regulatory support and favourable legislation in the past.

Illimity, which specialises in small business loans and distressed debt, grew its assets to €4bn by the end of 2020, its first full year of operations. It posted a return on equity of 5.5 per cent despite the impact of the pandemic and said it expects to increase it further this year.

Such rapid growth, however, is not the norm. Out of the 278 Italian fintech companies analysed by PwC, only 37 had an annual turnover above €1m, and 70 per cent employ 10 people or less.

The consultancy says low levels of investment and a focus on more mature companies, as opposed to start-ups, have been key challenges. In 2018, for example, a single deal — a €100m investment in insurance company Prima Assicurazioni — accounted for a third of all the money invested in Italian fintech start-ups. The rest trickled down to 34 other companies.

The lack of investments in the Italian ecosystem has encouraged several larger fintechs like Moneyfarm, Soldo and OvalMoney to move their headquarters abroad.

Still, Illimity’s Passera remains optimistic, highlighting progress on initiatives like open banking, which forces institutions to share customer data, enabling new competitors or collaboration with third-party developers to build new services. “Digitalisation is changing the entire banking sector, innovation will play a significant role in its future . . . increasingly, [fintech] banks will act as disrupters for the sector and will emerge as new winners,” said Passera, who previously ran Italy’s largest bank Intesa Sanpaolo.

“Without inferiority complexes toward other countries, [while] trying to follow their best practices, there’s a great potential in Italy.”

Quick fire Q&A

What’s your name? SeedFi

When were you founded? March 2019

Where are you based? San Francisco and New York

Who are your founders? Chief executive Jim McGinley, chief operating officer Eric Burton, chief technology officer Rodrigo Menezes, head of marketing Greg Berman and head of product Bernardo Menezes.

What do you sell, and who do you sell it to? SeedFi is a financial health start-up helping underserved Americans build credit, save money, access funds and plan for the future.

How did you get started? The founding team wanted to help underserved communities after spending years working together at mission-driven start-ups and big banks.

How much money have you raised so far? $69m ($19m equity and $50m debt)

What’s your most recent valuation? N/A

Who are your major shareholders? Founders, Andreessen Horowitz, Flourish Ventures, Core Innovation Capital, and Quiet Capital

There are lots of fintechs out there — what makes you so special? We’re helping struggling consumers escape cycles of debt and build long-term financial health, which is more important in today’s economy than ever.

Fintech fascination 

Mark Carney joins Stripe: Speaking of high-profile former central bankers, Mark Carney, former Bank of England governor, has added to his growing list of post-BoE jobs by joining the board of payments group Stripe. Carney is already head of impact investing at Brookfield Asset Management, and he has been active in pushing finance firms to do more to fight climate change. Carney said he wanted Stripe’s payments infrastructure to help encourage “strong and inclusive economic growth”.

More bad news for Ant Group: Anyone hoping Jack Ma’s Ant Group would be able to put its recent travails behind it after reaching a restructuring deal with Chinese authorities last month are likely to have been disappointed this week. At the weekend, regulators confirmed new rules governing how platforms like Ant fund their loans, which analysts say could hit Ant’s valuation. Pressure on the company has boosted rivals who charge much higher interest rates, raising fears that a drive that was officially intended to reduce credit risk in the economy could actually spur more defaults. An investigation by the Wall Street Journal sheds some light on why authorities may be willing to put up with such an outcome.

Transferwho? TransferWise has become one of the best-known names in fintech over the past decade, but co-founder Kristo Käärmann says the name doesn’t suit it any more. As of Monday, it will just be “Wise”. The change reflects the company’s efforts to expand beyond its roots as a simple money transfer service into a broader platform for internationally-minded consumers and, especially, businesses. 

Wirecard fallout: The Wirecard saga continues to produce new ways to shock even the most jaded of financial journalists. This week it emerged that a senior investment banker at UniCredit continued to moonlight for now-disgraced Wirecard CEO Markus Braun until just before the payments company collapsed. Jana Hecker, who had worked with Wirecard in a previous role at Deutsche Bank, ran up around €800,000 of invoices with Braun, who is currently in police custody after being accused of being the linchpin of a criminal racket that conducted “fraud in the billions”.





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