Wal-Mart Explores Bid for Carrefour in Brazil

Wal-Mart Stores Inc. (WMT), the world’s largest retailer, is exploring a bid for Carrefour SA (CA)’s Brazilian stores to help bolster its scale in Latin America, said several people with knowledge of the process.

The plans are at an early stage and Bentonville, Arkansas- based Wal-Mart may decide against an offer, said the people, who declined to be identified as the process is private. Wal-Mart has let Carrefour know of its interest, though the two sides aren’t in formal talks, said one of the people.

Wal-Mart has long coveted Carrefour’s Brazilian assets and discussed buying them two years ago, according to one person. Interest ramped up in recent weeks after Carrefour abandoned a proposed plan to combine its business with Cia. Brasileira de Distribuicao Grupo Pao de Acucar, the person said. The unit may be worth 7 billion euros ($9.9 billion) said Niamh McSherry, an analyst at Berenberg Bank in London.

“It wouldn’t surprise me if Wal-Mart were looking at the business,” said McSherry. However, “price is key and I think it would be difficult at present for Carrefour to crystallize a price shareholders would be happy with.”

Wal-Mart’s interest may extend to all of Carrefour’s business in Latin America, which includes stores in Colombia and Argentina, said two of the people. The company is working with advisers to examine the assets and how they might fit into their own business, one person said. One of the advisers is UBS AG, and Wal-Mart has also hired law firm Machado, Meyer, Sendacz & Opice Advogados, said people familiar with the matter.
Strategic Market

Wal-Mart rose $1.32, or 2.7 percent, to $49.73 yesterday in New York Stock Exchange composite trading. Carrefour climbed 34 cents, or 1.9 percent, to 18.28 euros at 9:04 a.m. in Paris trading, extending yesterday’s 3.1 percent advance.

Kevin Gardner, a Wal-Mart spokesman, said the company doesn’t comment on rumors and speculation. Levallois-Perret, France-based Carrefour considers Brazil “a strategic market,” said a spokeswoman for Carrefour, who declined to be identified.

“Markets like Brazil are a key growth driver in Carrefour’s strategy,” said the spokeswoman. “We have been there since 1975 and our plan is to continue growing there.”

Carrefour, which has cut profit estimates repeatedly since November, had sought expansion in Brazil and China as store revamps and price cuts in France failed to revive domestic growth.

Some Carrefour investors are pushing for management to explore a sale after the retailer’s market value shrank by 9.5 billion euros this year, two of the people said.
Wal-Mart’s Largest

Groupe Arnault, controlled by French billionaire Bernard Arnault, and investors Blue Capital and Colony Capital LLC together own about 14 percent of the retailer.

A purchase of all the Latin American assets, which could fetch about 10 billion euros by McSherry’s estimate, would be the largest in Wal-Mart’s history and help Chief Executive Officer Mike Duke tap growth in developing nations after a two- year slump in U.S. sales.

Carrefour wrote down the value of the Brazil business by 550 million euros, leading to new management in the Latin American operations and the proposed combination with Pao de Acucar. That collapsed in July after Brazil’s national development bank rejected a plan to help fund the deal.

Carrefour, led by CEO Lars Olofsson, has dropped 33 percent this year in Paris trading, hurt by Brazil and a struggle to revive the French business, its largest.
International Operations

Olofsson said in June that he is weighing how to strengthen Carrefour in emerging markets. The retailer, second only to Wal- Mart, got about 12.5 billion euros in sales from Brazil last year including value-added tax, or more than 10 percent of the total. Carrefour had more than 500 stores in Brazil at the end of 2010.

Wal-Mart gets about one-quarter of its revenue from its international operations and the rest from the U.S., where sales at stores open at least a year have sunk for eight straight quarters. Wal-Mart’s biggest push overseas so far was the $10.8 billion acquisition of the U.K.’s Asda Group Plc in 1999.

Wal-Mart is scheduled to report second-quarter results next week. In the previous period, the retailer reported that total sales topped $100 billion, bolstered by its expansion in emerging markets including Brazil and China. The retailer didn’t break out specific figures for those countries.

Wal-Mart pledged in May to invest 1.2 billion reais ($740 million) and open 80 new stores in Brazil this year. The retailer also planned to hire about 7,000 people in the country, Latin America’s largest economy