Deal Time?

The French Face of the Amazon Fightback

Carrefour's new CEO could be on his way to a deal.
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Wacky supermarket combinations are all the rage.

First there was J Sainsbury Plc's acquisition of Argos, and then Tesco Plc's bid for Booker. Even Wal-Mart Stores Inc. has got in on the act, buying internet retailer for $3.3 billion.

There's one theme uniting all these disparate deals: the need to fight Inc., whether that's in its fledgling grocery delivery business or in its more established non-food markets.

Balancing Act

Alexandre Bompard limited Fnac's sales decline while increasing earnings

Source: Bloomberg

When Tesco agreed to buy Booker it got a wholesaler and the possibility of a new chief executive officer down the line. Carrefour's picking Fnac Darty SA's Alexandre Bompard to be its new CEO is the other way round: there's now the potential for a tie-up between his old and new stomping grounds.

Most big European supermarkets face the same threats: As well as the encroachment of Amazon, they have to contend with the rise of the German discounters Aldi and Lidl. There's also the drag from having too much space in their largest stores as sales move online.

Bompard's background at Fnac shortens the odds on some kind of co-operation with Carrefour. That could be simply a deal for Fnac to take excess space in the grocery stores. 

Sainsbury initially went down this road, putting Argos concessions into Sainsbury locations. After these proved successful, it went further, and made a takeover approach. 

Combining Carrefour and Fnac more extensively could help the supermarket chain harness the progress Bompard has already made in fending off Amazon. These hopes, together with Bompard's strong track record, have driven shares in Carrefour higher.

When he joined Fnac in 2011, it was reeling from competition from the online giant, and the broader shift of some of its products from physical to digital formats. He was able to limit revenue declines, while expanding earnings.

Bompard Effect

FNAC Darty shares more than tripled since their 2013 debut, while Carrefour's have stagnated in the same period.

Source: Bloomberg

He showed a savviness in modernizing a traditional retail business for this new era. Last year, he took that one step further, acquiring Darty, France's leading seller of home appliances, for $1.3 billion.

A combination of Carrefour and Fnac would increase buying power, potentially helping the combined group to offer lower prices. It would increase the physical distribution potential for Fnac, adding 5,500 distribution points across France, according to analysts at Oddo Securities. That's something that Amazon doesn't have.

The downside is that synergies would be limited. Indeed, Fnac is still working on wringing 130 million euros ($145.3 million) of promised synergies from its purchase of Darty. Bompard's decision to leave before this is complete is one of the few blemishes on his record.

Indeed, analysts at Natixis see cost savings of only 55 million euros. Potential savings may be limited by reduced scope to shutter Fnac stores. That wasn't the case with Sainsbury -- one of the reasons it pounced on Argos was that it would be able to close many of its high-street locations. 

French Extravagence

Carrefour spends far more on capital expenditures than peers

Source: Bloomberg

The jury's still out on the wisdom of the Sainsbury deal. Argos had been struggling for some years when the merger happened, and the trials of the pound have created a substantial headwind to success.

Across the Channel, this looks like a supermarket purchase that could work, not least because Bompard has already done a good job turning around Fnac. With Carrefour aiming to triple online sales to 4 billion euros by 2020, and no let-up in pressure from Amazon and the Germans, it may not be such a strange deal after all.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the authors of this story:
    Andrea Felsted in London at
    Leila Abboud in Paris at

    To contact the editor responsible for this story:
    Jennifer Ryan at

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