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 Carrefour, the No. 2 retail chain in Brazil, sees a private
placement as a more feasible alternative than an initial public
offering, said the source, who requested anonymity because the talks
remain private. Capital markets activity in Brazil, including IPOs
and share offerings, is off to its worst annual start since at least
2004.
Diniz, who stepped down last year as chairman of Carrefour archrival
GPA SA <PCAR4.SA> after significantly reducing his stake in the
company, has teamed up with buyout firm Tarpon Investimentos SA
<TRPN3.SA> and another investor for the deal, the source said. Talks
between Carrefour and the Diniz-led group are "at a very advanced
stage", the source added.
Another potential bidder is a sovereign wealth fund that the source
would not name. While the structure of the deal is still under
discussion, it could include the sale of a stake in Atacadão,
Carrefour's cash-and-carry wholesale unit, a second source said.
Carrefour and a spokeswoman for São Paulo-based Tarpon declined to
comment. A spokeswoman for Diniz, a 77-year-old billionaire who is a
mainstay in the Brazilian society pages, denied that a deal with
Carrefour was in the works.
Last week, Carrefour Chief Executive Officer Georges Plassat said a
listing in Brazil could take place in 2015 and that local investors
would help the French retailer expand in Latin America's largest
market. Plassat also said, however, that a private placement,
through which a company sells a stake without carrying out a public
offering, was under consideration.
Proceeds from the deal would help Carrefour take on GPA in Brazil's
competitive retail market, where demand remains robust because of
years of steady household income gains and job creation.
Both sources said Carrefour hired Credit Suisse Group AG <CSGN.VX>
to handle the transaction. Credit Suisse did not have an immediate
comment.
Shares of Carrefour erased their declines following the news of the
possible deal but retreated later in the session to close 1.6
percent lower at 27.140 euros. Shares of GPA were up 0.8 percent in
São Paulo.
The first source said Carrefour began to consider alternatives other
than an IPO for Atacadão following a crackdown by state tax
authorities, who are trying to identify customers to see if they are
evading retail taxes. Small grocery retailers are the main clients
at Atacadão and other cash-and-carry stores in Brazil.
In an IPO, investors would probably seek a greater discount because
of fears that the tax crackdown could end up reducing Atacadão's
client base, the first source said.
RETURN TO RETAIL
A deal with Carrefour would mark Diniz's return to retailing. The
eldest son of GPA's founder, he left the company in September to
turn around BRF SA <BRFS3.SA>, a Brazilian processed foods company
and the world's No. 1 poultry producer.
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Diniz fell out with France's Casino Guichard Perrachon & Cie <CASP.PA>,
his partner at GPA, after he initiated merger talks with Carrefour
in 2011. Carrefour would have gotten a stake in GPA just as Casino,
which had not approved of such a deal, was preparing to take control
of the Brazilian retailer under a previous shareholder agreement
with Diniz.
Casino did not insist on a non-compete clause with Diniz, who never
hid his intention to return to the retail industry.
Both Casino and Carrefour are looking to emerging markets to offset
sluggish growth at home.
CASH-AND-CARRY
Cash-and-carry stores like Atacadão allow grocery store owners and
other consumers to buy goods in bulk and settle the purchase on the
spot, removing the costs of delivery and customer credit associated
with other kinds of wholesale.
The format became popular in Brazil in recent years and has
attracted the attention of investors because of its low distribution
cost ratios and higher returns on invested capital.
Carrefour bought its Atacadão wholesale unit in 2007 for $1.1
billion, a deal that many analysts say was its most significant
acquisition in the last decade.
Other cash-and-carry chains in Brazil include GPA's Assai and
Wal-Mart Stores Inc's <WMT.N> Maxxi Atacado. According to estimates
by analysts at Espírito Santo Investment Bank, Atacadão accounts for
75 percent of Carrefour's profits in Brazil.
Operational profit margins at Atacadão are estimated at 6.5 percent
of revenue, compared with 3.1 percent at Assai, the analysts said.
They said Atacadão benefited from its larger scale and almost no
rental costs because it owns the real estate where most of its 100
stores are located.
($1 = 2.35 Brazilian reais)
(Editing by Todd Benson, Stephen Powell
and Lisa Von Ahn)
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