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Carrefour’s Latest Deal Miss Shows Consolidation Is Hard

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(Bloomberg) -- It’s been a tough year for Alexandre Bompard. Attempts by the Carrefour SA boss to create a supermarket champion in France are proving elusive.

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Talks on a deal to tie up the publicly listed grocer with privately held rival Auchan have failed, Bloomberg reported over the weekend. The two sides were discussing a 16.6 billion-euro ($19 billion) combination that would have seen the Mulliez family, the owners of Auchan, hold a majority stake in a combined entity. Disagreements over the deal structure proved too hard to overcome, people familiar with the situation said.

Carrefour shares were little changed early Monday.

The talks collapsed less than a year after Carrefour explored a sale to Canada’s Alimentation Couche-Tard Inc. That transaction failed after the government intervened to prevent a foreign buyer from snapping up the biggest private employer in France, the year before crucial presidential elections scheduled for April 2022.

Bompard, a deal maker who engineered the combination of electronics retailer Darty with book-and-electronics chain Fnac, has been trying to shore up Carrefour’s lagging share price with buybacks, improved operational performance in its crucial home market, greater free cash flow generation and targeted M&A deals. Yet during his tenure since July 2017, shares of the grocer have lost more than a quarter of their value.

Part of the difficulty lies in timing.

“The French grocery market looks theoretically ripe for consolidation. But, in practice, don’t expect any major deal within 12-18 months,” Clement Genelot, analyst at Bryan Garnier, said by email, adding that “mergers between equals” are “too complex” while political barriers remain high ahead of next year’s polls.

Crowded Market

France is a crowded market, with at least six major national players, alongside German discounters Lidl and Aldi and online-focused new ventures. That’s made it highly price-competitive, and profit margins are razor-thin.

The leader, Leclerc has a 22.7% market share, followed by Carrefour, with 19.7%. Auchan ranks fifth, with 9.2%, according to data from Kantar.

Another stumbling block lies in the ownership of these supermarkets. “The fact that France is a market with a high share of independent” grocers such as Leclerc, Systeme U and Intermarche “doesn’t help to trigger a consolidation,” Genelot added.

France is not the only European market where internal consolidation among grocers has proved tricky. U.K. regulators in 2019 blocked a proposed tie-up of the No. 2 player, J Sainsbury Plc, with third-ranked Asda. Since then the latter chain and the No. 4 operator, Wm Morrison Supermarkets Plc, have both been taken over by private equity.

Genelot expects transactions in France will be more palatable after the election.

“Consolidation will have to materialize at some point to put an end to an endless deflation in France” and to enable investments in online capabilities amid the threat of digital grocery platforms, he said.

(Updates with shares in third paragraph)

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