Cencosud Acquires Carrefour Colombia
Pedro Fernandez Ignacio Guarda Marisol Mar nez Paula Pon liano Heng Zhang Carrefour Colombia: An Opportunity Arises
Main character: Juan Manuel Parada , the newly appointed CFO of Cencosud
• Carrefour, the world’s second-largest retailer, looking to cut costs and debt, due to the difficult economic situa on in Europe. Advantages Disadvantages • Carrefour was contempla ng whether to sell its Colombian opera ons (100 stores). • Allows them to penetrate • Carrefour’s Colombian • Juan Manuel worried that disclosing this informa on could lead the market in a way that opera ons represent a Horst Paulmann, President of Cencosud, to make a hasty wouldn’t have been large asset that would decision. possible via organic growth require Cencosud to • This could be Juan Manuel’s first acquisi on and he didn’t want • Carrefour stores share undertake more debt than it to be a value-destroying one. similar format to Cencosud usual • Needs me, to put together a valua on but knew he didn’t have stores, which makes them a much. Since he had this report, it meant that other compe tors good fit with Cencosud’s also did. He needed to reach a conclusion fast or risk Wal-Mart current opera ons bea ng them to the punch.
How Should CFO Juan Manuel Parada present the opportunity to President Horst Paulmann and how much should he value the company for? 2 Chilean Retailers Overview by 2011
Market Cap. Department Home Sales 2011 EBITDA 2011 Total Square Latam Footprint Company Supermarkets 2011 Stores Improvement (in $ million) (in $ million) Feet 2011 2011 (in $ million)
Chile, Argen na, Peru, Brazil, Other brands in Latam $15,749 $1,436 $13,107 27.6 million markets Colombia Chile, Peru, $10,633 $1,591 $18,710 18.9 million Argen na, Colombia
NA NA $5,394 $531 $3,172 7.5 million Chile
NA NA $2,474 $221 $1,845 3.9 million Chile, Peru
NA NA $344 N.M. $278 2.0 million Chile, Colombia
NA NA $471 $46 $235 0.9 million Chile
Source: Company reports, Bloomberg. 3 Food Retail in Main Latam Markets
Colombia Brazil Highest growth prospects in the World’s third largest groceries region. Solid economic environment market, having both strong local and Main Players foreign compe tors Main Players Grupo Exito, Carrefour, Olimpica, La 14 Pao de Azucar, Carrefour, Walmart Cencosud Revenues by Country 2011 Colombia 1%
Peru Peru Low penetra on of “Developed” retail. 8% A rac ve growth driven by increase in real Brazil Chile wages 21% 41% Main Players Supermercados Peruanos, To us Argen na Argentina 29% Industry affected by poli cal instability, and economic difficul es Chile (infla on, access to credit). Source: Cencosud Annual Report 2011 Highly compe ve market, Nevertheless, dominated by foreign strong local players plus Walmart players Main Players Main Players Walmart, Cencosud, SMU, To us Carrefour, Cencosud and Walmart
4 Company Overview: Cencosud
• More than 50 years of history in retail (beginning 1960) Revenue By Business Segment
• Opera ons in 5 countries: Chile, Argen na, Peru, Brazil 2% and Colombia 3%
• Follows a mul -format strategy 9% • Over 800 stores, 25 shopping centers, 4.2 million credit Supermarkets cards issued 12% Home Improvement • Strong financial performance: US $15.7 billion in revenues Department Stores and an EBITDA of US $1.4 billion that has increased by Shopping center more than 3x since 2005 74% Financial Services • + 10 acquisi ons in Brazil, Peru, Chile and Argen na
Offers more than 450 thousand products through diversified business segments and 15 brand names 5 Source: Cencosud 2011 Annual Report. Organic growth plus a sequence of key acquisi ons posi oned Cencosud as a retail powerhouse in La n America
1982 – 2001 2002 – 2006 2007 – 2011 Looking ahead: Organic Growth Acquisi ons Expansion to Colombia, Growth in current in Argen na in Argen na Peru and Brazil markets vs. New markets • 1982: Opened its first Jumbo • 2002: Acquired 4 Home • 2007: Joint Venture with • Low penetra on in Colombia, supermarket (+10 stores by Depot stores for $90 million French retailer Casino, to Peru and Brazil requires Cencosud to further invest in 2001) • 2004: Acquired the open 4 stores of Easy these markets • 1988: Opened its first supermarket chain Disco for Colombia commercial center, Unicenter, $60 million, which owned • 2007: Acquired Grupo Wong • Mexico and Panama are (by 2011 +10 commercial 19.2% of the market share in Peru for $500 million (2 featured as poten al centers and 40% of the commercial centers and 74 des na ons to con nue market share) supermarkets) geographic diversifica on in • 2008: Acquisi on campaign in the region Brazil for $2 billion (7 acquisi ons resulted in over 150 new supermarkets)
Cencosud is s ll deba ng whether to con nue its aggressive diversifica on strategy or consolidate its market posi on in Brazil, Colombia and Peru. 6 Looking Forward: Linking roads
Con nue developing a mul - format and mul -brand strategy
Focus on opera ng margins and cash flows
Organic expansion in selec ve The Company declares markets no inten ons to acquire assets in Con nue to pursue Colombia by Jun-12 opportunis c acquisi ons while maximizing synergies
Enhance customer loyalty
The company’s business strategy resides in leveraging the compe ve advantages of all Source: Cencosud business lines to provide consumers with excep onal shopping experiences 7 The opportunity: Carrefour Colombia
2nd largest player in the Colombian market a er Grupo Exito (controlled by the also French company Casino) • 72 Hypermarkets, 4 Cash & Carry and 16 convenience stores • ~400 th square meters of floor space • Owns 90% of the real estate • Sales and EBITDA of over $2bn and $140mm in 2011
8 Valua on
31% premium paid Main Assumptions Revenue Growth Marketline’s Colombian Food Retail CapEx 1.3x depreciation (2.0x first 3 yrs) Synergies To match Cencosud EBITDA mg Working Capital -32 days of sales
Source Cost of equity 13.4% ICCRC model Cost of debt 8.1% Junk bond spread June '12 (Ibbotson) Tax rate 29.7% Carrefour's efective tax rate D/E ratio 32.7% Based on Cencosud's ratios Wacc 10.9%
9 The A ermath
• The company’s Chairman Horst Paulmann flew to Paris to demonstrate great interest in the asset and the
transac on was sharply executed CLP$ 2,900 2,850 • Cencosud announced on October 19th, 2012 that it was 3,500 2,800 2,750 -12% drop acquiring Carrefour Colombia for €2 billion 2,700 3,000 2,650 (approximately $2.6 billion), the transac on included the 2,600 2,550 2,500 2,500 real estate 7/31/12 8/31/12 9/30/12 10/31/12 11/30/12 Announcement • The transac on was financed through $1 billion in bonds 2,000 date and $1.5 billion equity issue 1,500 • The price paid included a 31% premium according to our 1,000 valua on • Stock price of Cencosud dropped drama cally a er the
announcement and has never reached Source: San ago Stock Exchange
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