Carrefour SA, the world's second- largest retailer, plans to sell 1.5 billion euros ($2.3 billion) of property this year as billionaire Bernard Arnault and Colony Capital LLC become its biggest shareholders.
Chief Executive Officer Jose Luis Duran said today that the supermarket owner is in talks with ``several private investors'' and real estate would become Paris-based Carrefour's ``second business.'' The retailer also reported second-half profit was little changed today amid French discounting.
Carrefour rose as much as 4.4 percent in Paris trading after the Halley family said it wouldn't vote as a bloc, freeing members to sell their shares. The family initially resisted demands by Arnault and Colony to sell property, and has lost half its investment since combining its Promodes SA chain with Carrefour almost a decade ago. Carrefour still plans an initial public offering for Carrefour Property, though not before 2009.
Arnault and Colony ``are likely to want to restructure the company'' now that the Halleys have dissolved their pact, said Chris Hogbin, an analyst at Sanford C. Bernstein in London. ``I think that is what the shares are responding to.''
Carrefour rose 2.02 euros to 48.46 euros at 1:36 p.m. in Paris trading. The stock is still down 9 percent this year, compared with a 4.3 percent gain by Wal-Mart Stores Inc., the only retailer of greater size.
Halley Agreement
Arnault, France's richest man, and Colony Capital LLC, a Los Angeles-based private-equity investor, said they plan to ``exploit the group's ability to create value'' as Carrefour struggles with stagnant sales in France.
Their Blue Capital venture bought 9.1 percent of Carrefour a year ago and will become the biggest investor on April 15, when the dissolution of the Halleys' pact takes hold and Carrefour holds its annual shareholder meeting.
Family members currently control 13 percent of Carrefour shares and 20 percent of its voting rights. Robert Halley, the patriarch who became chairman last year, plans to retain his title. The family will lose its two other board seats.
Duran said during a press conference in Paris today that Carrefour plans to sell up to 1.5 billion euros of real estate by the end of 2008 to private and institutional investors.
Property Sales
``We do not believe it's in Blue Capital's mind to launch a full bid,'' Citigroup analysts including Jerome Samuel wrote in an e-mailed note. Still, the Halleys' move ``presents a possible opportunity'' for Blue to increase its control amid ``apparent disagreements'' within the Halley family, they wrote.
Pressure from Colony and Arnault had prompted Carrefour to announce it was pursuing an initial public offering for its property business. That plan was later put on hold as stock markets slumped around the world.
``The markets are too shaky, too volatile at the moment,'' said Chief Financial Officer Eric Reiss in an interview after the press conference. ``We don't want to suffer big discounts. We want to show that we have a strong real-estate story.''
The retailer may sell a further 3 billion euros of real estate, and will hold an IPO for Carrefour Property when market conditions permit. Duran said a property IPO won't happen in 2008 and the company plans to keep majority control of its real- estate assets.
Carrefour Property represents about 250 hypermarkets and 500 supermarkets in France, Spain, and Italy, according to Reiss, who estimates its total value between 20 billion euros and 25 billion euros.
Second-Half Earnings
``We put in a dedicated group of managers, and expect to make property our second business,'' Duran said. ``It's obvious that Colony has considerable expertise in real estate, and they have input on our property strategy,'' the executive said.
Second-half profit was unchanged at 1.57 billion euros, according to Bloomberg calculations, and full-year operating profit in France fell 5.7 percent amid discounts by rivals such as Groupe Auchan SA. Dutch retailer Royal Ahold NV today reported that second half profit rose 5.4 percent rise to 470 million euros.
Full-year profit rose 1.4 percent to 2.3 billion euros. Net income from recurring operations rose 0.7 percent to 1.87 billion euros, compared with the 1.9 billion-euro average compiled by Bloomberg from 14 analyst estimates. Carrefour reiterated its 2008 target of growing operating profit faster than sales.
Earnings were ``bang in line'' and the guidance is ``not surprising, but it's reassuring that it's not worse,'' Bernstein's Hogbin said.
French Discounts
Rising food prices in France, combined with pressure from competitors to keep prices low, eroded profitability. Food suppliers in France raised their prices by up to 10 percent since the beginning of 2008, Duran said.
French operating profit in 2008 will still grow faster than sales for the first time in four years as the company cuts logistics costs, Duran said during a conference call.
Carrefour spent $1.1 billion last year to buy Brazil's Atacadao and bulked up in Poland by purchasing Royal Ahold NV's local supermarkets. Operating profit in Latin America jumped 87 percent and it increased 28 percent in Asia.
Profit is ``entirely driven by emerging markets'' at Carrefour, Jaime Vazquez, an analyst at JPMorgan Chase & Co. in London, said before the figures were released. He has an ``overweight'' recommendation on the stock.
The retailer also plans to open its first Russian store in the second half this year and five more next year, Duran said. Carrefour is not in talks with India's Wadia family to form retail partnership in the country, the executive said.
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