Cencosud Acquires

Pedro Fernandez Ignacio Guarda Marisol Marnez Paula Ponliano Heng Zhang Carrefour Colombia: An Opportunity Arises

Main character: Juan Manuel Parada , the newly appointed CFO of

• Carrefour, the world’s second-largest retailer, looking to cut costs and debt, due to the difficult economic situaon in Europe. Advantages Disadvantages • Carrefour was contemplang whether to sell its Colombian operaons (100 stores). • Allows them to penetrate • Carrefour’s Colombian • Juan Manuel worried that disclosing this informaon could lead the market in a way that operaons 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 acquision 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 valuaon but knew he didn’t have stores, which makes them a much. Since he had this report, it meant that other competors good fit with Cencosud’s also did. He needed to reach a conclusion fast or risk Wal-Mart current operaons beang 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, Argenna, Peru, , Other brands in Latam $15,749 $1,436 $13,107 27.6 million markets Colombia , Peru, $10,633 $1,591 $18,710 18.9 million Argenna, 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 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 competors Main Players Grupo Exito, Carrefour, Olimpica, La 14 Pao de Azucar, Carrefour, Cencosud Revenues by Country 2011 Colombia 1%

Peru Peru Low penetraon of “Developed” retail. 8% Aracve growth driven by increase in real Brazil Chile wages 21% 41% Main Players Supermercados Peruanos, Tous Argenna 29% Industry affected by polical instability, and economic difficules Chile (inflaon, access to credit). Source: Cencosud Annual Report 2011 Highly compeve market, Nevertheless, dominated by foreign strong local players plus Walmart players Main Players Main Players Walmart, Cencosud, SMU, Tous Carrefour, Cencosud and Walmart

4 Company Overview: Cencosud

• More than 50 years of history in retail (beginning 1960) Revenue By Business Segment

• Operaons in 5 countries: Chile, Argenna, 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 acquisions in Brazil, Peru, Chile and Argenna

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 acquisions posioned Cencosud as a retail powerhouse in Lan America

1982 – 2001 2002 – 2006 2007 – 2011 Looking ahead: Organic Growth Acquisions Expansion to Colombia, Growth in current in Argenna in Argenna Peru and Brazil markets vs. New markets • 1982: Opened its first • 2002: Acquired 4 Home • 2007: Joint Venture with • Low penetraon 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 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 potenal centers and 40% of the commercial centers and 74 desnaons to connue market share) supermarkets) geographic diversificaon in • 2008: Acquision campaign in the region Brazil for $2 billion (7 acquisions resulted in over 150 new supermarkets)

Cencosud is sll debang whether to connue its aggressive diversificaon strategy or consolidate its market posion in Brazil, Colombia and Peru. 6 Looking Forward: Linking roads

Connue developing a mul- format and mul-brand strategy

Focus on operang margins and cash flows

Organic expansion in selecve The Company declares markets no intenons to acquire assets in Connue to pursue Colombia by Jun-12 opportunisc acquisions while maximizing synergies

Enhance customer loyalty

The company’s business strategy resides in leveraging the compeve advantages of all Source: Cencosud business lines to provide consumers with exceponal shopping experiences 7 The opportunity: Carrefour Colombia

2nd largest player in the Colombian market aer Grupo Exito (controlled by the also French company Casino) • 72 , 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 Valuaon

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 Aermath

• The company’s Chairman Horst Paulmann flew to Paris to demonstrate great interest in the asset and the

transacon 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 transacon 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 transacon 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 valuaon • Stock price of Cencosud dropped dramacally aer the

announcement and has never reached Source: Sanago Stock Exchange

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