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Carrefour sells control of China business at a discount
Published on: Tuesday, June 25, 2019

PARIS: Carrefour SA has agreed to sell an 80pc stake in its China unit for 4.8 billion yuan (US$698 million) in cash to local retailer Suning.com Co. as it rethinks its exposure in the world’s No. 2 economy after years of decline.

The yielding of control comes after a long search for a partner for its struggling Chinese operations. Once the premier foreign supermarket chain locally, the French retailer failed to adjust to the onslaught of e-commerce in recent years and sales slumped.

Carrefour will retain a 20pc stake and two seats out of seven on the China unit’s Supervisory Board, it said in a statement on Sunday. The transaction represents an enterprise value of 1.4 billion euros (US$1.6 billion) for Carrefour China, which generated net sales of 3.6 billion euros or 28.5 billion yuan in 2018. The valuation of Carrefour’s China unit at 0.2 times its 2018 price-to-sales ratio – compared to an industry average of 0.8 times is at a “significant discount to peers likely due to poor financial results,” said Citigroup Inc. analysts led by Lydia Ling in a note Monday.

“The consolidation in-store network, supply chain, logistics and membership could improve efficiency and profitability for both parties,” said the Citi note.

A growing number of European and American retailers are either scaling back their presence or tying up with local partners in order to stay competitive in China, where e-commerce penetration is one of the highest globally. Walmart Inc., which has a network of around 400 supermarkets, relies on JD.com Inc. for its delivery service, while Germany’s Metro AG is said to be trying to offload a majority stake in its Chinese business.

“The big problem for Carrefour and other western grocery chains is that they have major challenges in their home countries and can’t afford to grow in China,” said Pascal Martin, a Hong Kong-based partner at OC&C Strategy Consultants. “In China, if you want to grow in the groceries space, you have to continue to invest capital in less developed cities.”

It’s the end of an era for one of the first foreign brands to gain a loyal following among Chinese consumers. Carrefour entered the country in 1995, ahead of Walmart, and its massive hypermarkets where one could buy fresh pork along with a TV ushered in a new style of shopping for a country just opening up to the outside world.

But it has struggled to maintain profitability as buyers moved online rapidly in recent years, a shift that’s favoured home-grown giants like Alibaba Group Holding Ltd. Despite efforts to digitise its operations, and an initiative to rent out storage space to local retailer Gome Retail Holdings, Carrefour’s China sales declined about 10pc last year to 3.6 billion euros, according to the company’s annual report. Earnings before interest, tax, depreciation and amortisation were 66 million euros or 516 million yuan last year. It operates 210 hypermarkets and 24 convenience stores in China currently. – AFP



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