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The last thing President Emmanuel Macron needs right now is a merger between two of France’s biggest employers ahead of an election. Given the manifest potential for job losses and reduced competition in essential groceries, it’s convenient that talks to combine hypermarket operators Auchan and Carrefour SA have stalled. But the political context will change, and the deal’s financial and anti-trust obstacles aren’t as big as supposed.
There is an air of desperation about the two
“big-box†retailers even attempting a tie-up in a world where consumers prefer convenience stores or shopping online. Carrefour’s stock has more than halved in value since 2015. Chief Executive Officer Alexandre Bompard has now tried three deals without success since 2018.
Auchan, owned by the low-profile Mulliez family, doesn’t have a share price passing judgment but, like Carrefour, it’s been losing market share, according to data provider Kantar. Leader Leclerc and discounter Lidl remain formidable rivals.
A merger wouldn’t be a panacea. Analysts at Bernstein argue that bashing the behemoths together would create a “structurally challenged Leviathan†and distract from each firm’s existing turnaround plans.
But life together might still be less painful than continued independence for both sides. The duo could cherry-pick their portfolio and optimise their respective in-store offerings, say by rolling out some of Auchan’s non-food concessions more broadly. The goal would have to be to become a European Walmart Inc — the US giant has shown the large format has its place.
Above all, there would be efficiencies from deploying buying power and cutting duplicate functions. Before talks collapsed, the terms under discussion envisaged Auchan as the acquirer, Bloomberg News reported. Suppose Auchan found savings worth 2% of Carrefour’s 34 billion euros ($39 billion) of domestic sales, plus other piecemeal cuts internationally. That could add 1 billion euros of operating profit annually, worth perhaps 5 to 6 billion euros when taxed and capitalised, depending on one-off costs.
—Bloomberg