We heard this week that Alimentation Couche-Tard (ACT) is looking at acquiring European-based Carrefour, the seventh largest food retailer in the world. A non-binding, friendly offer was sent to Carrefour, which is worth south of $13 billion currently. Buying a grocery chain would be a significant departure from what ACT is known for. ACT is all about the convenience store economy. They have achieved greatness, just by building a massive business out of a piece of the retail landscape that is often overlooked or not taken seriously: convenience stores. Other than 7-Eleven, no other company in the world has been as committed to the customers who are in between meetings or meals, or service people on their rounds. But running supermarkets is a different story.
ACT, which is now worth about $46 billion, has grown through acquisitions of companies that didn’t manage to capitalize on being at the right place and the right time, with quality products at people’s disposal. Carrefour would be the largest acquisition in ACT’s illustrious history — a big bite to take. The company’s largest transaction to date was Texas-based CST Brands for about $6 billion in 2017. Investors may not see how the fundamentals of such a business deal could make sense for a company like ACT, but this may not in fact be such a long strategic reach for them.
What may be motivating Couche-Tard in acquiring a company like Carrefour is how the car industry is slowly transitioning towards electric vehicles. Couche-Tard has been a formidable force turning fuel business into food and convenience dollars. With fewer gas stations, many ACT-owned outlets will need to think differently about the market.
Carrefour also presents a rebuilding situation ACT would enjoy exploring. Carrefour’s network and brand need to be reenergized. For the last decade or so, despite posting decent figures, shareholders have been left wondering if the grocer could do better. Unlike convenience stores, groceries always offer limited margins with few prospects for growth. But ACT has a reputation of generating value by polishing hidden gems in companies like Carrefour. So, it is fitting for ACT to look at Carrefour as a tremendous opportunity.
What is also largely unknown about ACT is its highly effective supply chain. The company has been able to provide above-par products in stores, just because of how they deal with suppliers and how they focus on in-store merchandizing. Practices at ACT are very much transferable to an environment like food distribution.
Deal Between ACT & Carrefour Presents Unique Opportunity for Canadian Food Products
A deal between ACT and Carrefour could also present a unique opportunity for Canadian food products. Food manufacturing offers some of the best products in the world, and some of the safest ones. Having access to a portal like Carrefour in Europe, coupled with favorable conditions provided by the Comprehensive European Trade Agreement, an ACT-owned Carrefour could become the food ambassador Canadian companies need to generate more business on the old continent. Things could get interesting.
In essence, ACT is arguably one of the least understood and appreciated Canadian companies out there. Most investors will understand the company since it has delivered financially, time and time again. But most Canadians have never taken the time to appreciate how an empire can be built by selling fuel, chips, slurpees, and soft drinks. The unglamorous aspect of the business has gotten many to overlook the genius of Alain Bouchard and his team. It’s an impressive legacy.
Food retailing is not beyond what ACT can do in the future. The deal is not only about hedging against fossil fuels and the move to electric energy in the car economy, but also about making an iconic company more successful in the future. Financial multiples may not make sense right now given how the food retailing has performed well in recent months due to the pandemic, but the deal is still worthy of consideration.
The French government was quick to state that an acquisition would pose a food security threat to the French people. Such a claim makes little sense, given that Carrefour generates most of its business outside of France, and that France’s food distribution market is highly fragmented, unlike Canada’s.
An acquisition of Carrefour by ACT offers an interesting storyline. There are so many intriguing elements to this deal, it would be regrettable if it does not happen.