Carrefour Looks at Walmart in Brazil Merger

By Sarah de Sainte Croix, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Last week a deal that looked set to alter the face of the Brazilian retail sector for good floundered. The proposed merger between Brazilian supermarket chain Pão de Açucar and French retail group Carrefour collapsed amidst a storm of controversy. Carrefour, however, seems determined to have a slice of Brazil’s ever-increasing pie and is reported to be considering a merger with U.S. retail giant Walmart instead.

The Pão de Açucar deal collapsed when the Brazilian state-owned development bank, the BNDES, withdrew its funding for the project last week. Carrefour issued a statement last Wednesday saying, “We take note of BNDES’ decision not to finance the operation…and therefore the conditions necessary to the completion of this proposal have not been met.”

The BNDES’s involvement in the deal had been heavily criticized by Brazilian commentators for seemingly being contrary to the bank’s primary objective of national development. During a meeting on Tuesday, Pão de Açucar’s main shareholder, the French group Casino, confirmed its opposition to the proposal and the BNDES pulled out on the grounds that the merger was unfriendly.

Casino owns 43 percent of the Pão de Açucar Group (GPA) and shares joint control of the company with the Diniz Group, headed up by the founder and chairman of the GPA, Abilio Diniz. Part of Casino’s agreement with the Diniz Group is that in 2012 Casino will be allowed to appoint the chairman of the GPA’s holding company, Wilkes, therefore affording Casino even more control of the company.

The trouble started on June 28th when Carrefour announced that it had received a merger proposal from Pão de Açucar. The BNDES simultaneously announced its intention to insert around R$4 billion into the deal, defending its position by saying that the union would, “Open the way for increased introduction of Brazilian products in the international market.”

Casino responded with a statement saying, “This announcement confirms that secret, illegal negotiations have taken place and are going ahead.” They claimed that the negotiations should not have gone ahead without their knowledge and involvement, provoking speculation that the Carrefour merger proposal was a hostile move on the part of the Diniz Group to dilute Casino’s influence in the GPA ahead of the 2012 Wilkes agreement.

The collapse of the deal has left Carrefour in a delicate position. The company recently registered losses of R$1.2 billion in Brazil. As a result of this, the mother company in France has all but pulled out of financing the Brazilian operation. Without an external partner, Carrefour Brazil could not survive, so with Pão de Açucar now looking an unlikely ally, Walmart is being touted as the next in line.

Walmart reports an annual global revenue of US$421 billion with operations in fifteen countries worldwide, and has been in Brazil for fifteen years. It operates under nine different names and employs over 80,000 staff in Brazil alone. Its website states, “We seek to grow in a sustainable way and respect the culture and customs of the Brazilian people.”

In 2009 Walmart approached Carrefour to discuss the possibility of future negotiations, but at the time nothing came of it. One Brazilian economist commented, “The deal would be mutually advantageous – Walmart wants to grow in Brazil and it has already expressed an interest in doing business with Carrefour in the past. Carrefour, on the other hand, desperately needs a partner. It’s practically a done deal in my opinion.”