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24 Jun, 2019

Graceful exit

Graceful exit

Carrefour is beating a dignified retreat from China. The French retailer is selling an 80% stake in its local operations to Suning.com after more than two decades in the market. Valued at 1.4 billion euros including debt, the price looks decent given Carrefour’s slowing sales. For Suning and partner Alibaba, it opens a new front against e-commerce rivals.

Carrefour, which boasts more than 200 hypermarkets in China, has been in the People’s Republic for nearly a quarter of a century. It now follows other Western retailers like Tesco in pulling back its physical mainland presence. German wholesaler Metro is also considering a sale of its China operations.

Carrefour’s business in China has been struggling of late, with like-for-like sales slipping 6% last year, due in part to fierce competition with online operators who are steadily taking share from brick-and-mortar box stores. That makes the price Chief Executive Alexandre Bompard managed to squeeze out of his Chinese interlocutors all the more impressive. The Suning agreement values the total package at more than 21 times the 66 million euros in EBITDA its China operations generated last year. That’s far higher than Carrefour’s ratio of 7 times trailing EBITDA, according to Eikon data; Hong Kong-listed Sun Art Retail, which competes with Carrefour in China, trades in the same neighbourhood.

Suning’s share price climbed over 3% in morning trade after the deal was announced. Based on the equity price to operating revenue, the deal is valued less richly than some similar listed local rivals, Suning says. Regardless, both Suning and Alibaba are locked in a brutal battle over market share with tech giants Tencent and JD.com, both online and at physical stores that integrate with e-commerce.

In this light Carrefour’s China stores might be well-located strategic assets — indeed the French were also talking with Tencent, according to media reports, before the Suning deal. They might expand a grocery component to Suning’s offering, which is focused on electronics. Carrefour is retaining a 20% stake, which suggests they see some potential upside. Bompard isn’t quitting while he’s ahead, exactly, but this isn’t a bad way to go out.

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