In the midst of a takeover fight between rival retail chains, Wal-mart Stores Inc. (WMT) states its desire to buy Carrefour SA’s (CA) operations in the booming Brazilian market.
Carrefour, a giant French retailer, had been experiencing a rough patch for last few years. To overcome such issues, it had been trying to sell its assets. On June 28, Carrefour said that it had received an offer to merge its Brazilian operations with those of Companhia Brasileira de Distribuição (CBD), the leader in the Brazilian retail world.
The Bentonville, Arkansas-based retailer kept a close watch on the progress of events between CBD and Carrefour.
Under the $2.9 billion deal, CBD, Pão de Açúcar and Carrefour’s Brazilian arm will merge into Gama, a holding company. However, Casino, Carrefour’s arch rival, who owns 37% stake in CBD is standing in the way of the deal.
In this backdrop, Wal-mart being keen on gaining strength in Brazil showed interest in merging its operations in Brazil with Carrefour. Enjoying a leadership position in Mexico, Wal-Mart now aims to become the top player in Latin America’s largest market.
Brazilis one of the most lucrative destinations for retail giants as its economy projected 7.5% growth last year. Besides, according to the quarterly inflation report published on March 30 by Brazil’s central bank, it is projected to grow at a rate of 4% in 2011.
The supermarket, Wal-Mart plans to invest $770 million and open 80 new stores in Brazil this year, adding to the 436 it already owns. Wal-Mart also plans to hire 7,000 people in Brazil. The proposal is quite tempting for Carrefour, as it comes at a time when it’s grappling with the recession in Europe, which generates 80% of its revenues.
Wal-mart is enthusiastic about tapping emerging markets. Executives a the company recently paid a visit to the Nigerian Embassy in Washington D.C. and expressed an interest to launch new stores in the African nation. Wal-mart has already made inroads to Africa by acquiring 51% of Massmart Holdings few days back.
We remain encouraged by the significant presence of Walmart in the international market, customer loyalty and strong balance sheet of the company. However stiff competition from Costco Wholesale Corporation (COST) and Target Corp. (TGT) concerns us.
Currently, we maintain a Neutral rating on the stock. Further, Walmart holds a Zacks #3 Rank, which translates into a short-term Hold rating.
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