Canada's Couche-Tard, which operates the Circle K chain of convenience stores globally, has submitted a non-binding offer letter to Carrefour for a "friendly combination" at a price of EURO 20 per share, in a US$20bn deal. The terms of the transaction are under discussion, but there can be no certainty at this stage that these discussions will result in any agreement or transaction.
Retail’s deal maker
Although highly regarded as one of the industry’s most proficient deal makers, Couche-Tard’s proposed transaction with Carrefour is one of the least expected retail combinations. The convenience store retailer has a strong track record of deal making, including acquiring Europe’s Statoil Retail in 2012, Ireland’s Topaz in 2016 and a broad range of US operators over the last 20 years.
However, it has focused solely on the convenience channel, choosing to optimise its expertise and capabilities within an area it has demonstrated a strong track record of success. Around 70% of the retailer’s growth has been driven by acquisitions, helping to lift its global footprint to more than 12,000 stores, annual merchandise and service revenues in excess of US$14bn and total revenue of over US$54bn.
Source: IGD Research
Deep convenience expertise
Through its sole convenience focus, the retailer has been able to develop several key programmes, many of which are being deployed globally. These include its long-standing Froster slushie offer and its more recently developed Simply Great Coffee proposition. The retailer's current focus is on innovating the customer journey, optimising the local store offering and growing the network, including non-fuel locations.
Challenge of realising the synergies
Although Carrefour operates convenience stores and proximity formats in several of its markets across Europe, Asia and Latin America, the business is built around an extensive network of hypermarkets and supermarkets. It is difficult to see how Couche-Tard would be able to apply its standard acquisition playbook to this deal, which is centred on a swift and efficient integration, realisation of synergies and applying reverse learnings. Its most recent major acquisition of Holiday Stationstores in the US has delivered significant benefits around labour management and food-to-go across the wider business. Carrefour is also a significantly larger business with sales last year of over US$84bn.
Price will be a major factor
Top of mind will be striking a deal at the right price, with Couche-Tard having previously walked away from deals where the price has been too high. Last year, it withdrew its interest in Australia’s Caltex business, driven in part by the uncertainty caused by the pandemic. A deal for the business will also represent a major shift in strategy for Couche-Tard which has set out "To become the world's preferred destination for convenience and fuel." However, it is not without precedent, with the EG Group, which operates also operates convenience stores in Europe, the US and Australia, recently partnering withTDR Capital in a deal to potentially acquire Walmart's UK operations, Asda, which also mainly operates larger format stores.
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