Corporate Finance

Carrefour Raises Five Billion Reais in Brazilian IPO

French retail giant Carrefour had been studying the possibility of conducting an IPO for its operations in Brazil for years, but now the planning is over.

French retail giant Carrefour had been studying the possibility of conducting an IPO for its operations in Brazil for years, but now the planning is over.


On July 19th, it determined the closing price of its stocks in R$15 . The primary offering sold 205.9 million stocks and raised approximately R$3.1 billion. The secondary offering totaled R$2 billion , after the selling of nearly 135.8 million stocks.

 

Combining both primary and secondary papers, the IPO raised approximately R$5 billion  and Carrefour Brazil is now estimated to be worth $29.7 billion, ranking as the largest group of this segment in the country. Its main competition, Grupo Pão de Açúcar (GPA), is in second place, with the value of $17.7 billion.

 

According to Carrefour Brazil, the resources gathered in the IPO will go towards paying the debts of the company with its French headquarters, in the value of R2.8 billion. The remaining sum will be used to strengthen the company`s capital turnover. According to data the published by Carrefour, its revenue increased by 29.3% between 2014 and 2016, closing last year with R$47.5 billion. This growth gave to company  profits of R$1.17 billion in 2016, twice the figure of 2015.

 

According to Carrefour, the aim is to consolidate its position as the leader of the Brazilian market, by increasing its gap to GPA. Since 2014, Carrefour has grown at a stronger pace than its main competitor. Carrefour currently holds 11.8% of the market share, whereas GPA has 10.8%.

 

Itau BBA of Brazil worked with Carrefour on the deal, with the assistance of Bank of America, Merril Lynch, Goldman Sachs, JPMorgan Chase, Bradesco BBI and Santander.

 

What does the future hold?

Experts are skeptical about whether Carrefour can maintain its current growth. “There is a concern that the figures seen today are not sustainable, because they may have been a preparation for the IPO”, says Phillip Soares, analyst of Ativa Investimentos.

 

Another question mark concerning the future of Carrefour Brazil is the reaction of  GPA,  GPA aims to have opened six new stores of the Assai brand by the end of 2017 and wishes to close the year with 127 stores nationwide, against Carrefour’s 172.

 

A changing nation, a changing company

Concerning Carrefour, as of March 2017, it had restructured 64 hypermarkets and 13 supermarkets. Since 2014, the group has launched 77 of its Carrefour Express convenience stores.

 

The move to invest in smaller stores comes as a necessity, because of how the Brazilian economy has changed since 1975, when superstores started to appear in the country. In that time, inflation was high and product prices often oscillated, making it necessary for people to make one big trip to the market per month, in order to avoid the variation in the prices. Consequently, markets needed to be prepared for this monthly period of high demand, leading them to increase the size of  storage and the launch of supermarkets in the country.

 

Nowadays, under a more stable economy, the need for a big monthly trip to the store no longer exists, therefore, the super and hyper markets have lost their purpose. Keeping an eye on this trend, Carrefour is restructuring its operations in Brazil, spreading its operations across smaller stores nationwide.

 

A belated reply from the competition

One fact that helped Carrefour Brazil consolidate its position as the largest company in the segment was a misstep  by GPA, which only started to restructure its stores in 2015, which, according to analysts, was too late. The super and hypermarkets of the group were heavily hit by the 2014 economic crisis of Brazil.

 

GPA, however, is doing what it can to reverse the situation. “They are doing promotions , especially in the Extra brand and the expectancy is that the difference in the market share to Carrefour will diminish,” stated Giovana Scottini, an analyst at Eleven Financial.

 

C.S.

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