M&A Commentary: Walmart provides food for thought

Much has been made of the arrival’ of Walmart on the European food retail scene. June’s announcement of its acquisition of UK supermarket group Asda overshadowed Walmart’s initial experiment in Germany, when it acquired Aldi in August 1998. Nevertheless, the spectre of the US giant has been enough to send French rivals Carrefour and Promodes scurrying into each others arms. Predictably, the $18 billion tie-up is designed primarily to keep foreign predators’ out of the French market, while giving the newco market leader status in Belgium, Greece, Spain and Portugal. Therefore it was unsurprising that the EU Competition commission has decided to investigate. The French have asked for the deal to be referred back to the national antitrust authority, yet this remains unlikely, bearing in mind the multi-jurisdictional element.

Buyout houses will be pleased to note that retail analysts predicted that the deal will go through, with a number of divestments. The most likely area is Spain, where Carrefour-Promodes has a 25 per cent market share. But the biggest opportunities for VCs are more likely to come from a rapid expansion programme as retailers attempt to build a rolling pan-European strategy. Yet retailers are not running scared of Walmart – its all-singing, all-dancing employee culture is at odds in many parts of Europe – it is the advent of the single currency which is creating a new retail environment.

Disopsals continue

Moving up the food chain, European wholesaler Albert Fisher (AF) continued its disposal programme, selling its continental seafood businesses to German firm Pickenpack (backed by Gilde, the Dutch VC). The three businesses are Rahbekfisk, the Danish frozen fish firm, La Couronne (fresh fish wholesaler) and Morubel (prawn supplier), both of Belgium. The $33.5 million buyout marks the withdrawal of AF from continental seafood. The sale is part of AF’s restructuring programme devised by Lazard Brothers in July 1998. The change of focus has so far spawned seven deals: an MBO and a trade sale in the US both helped AF achieve a North American exit, while the quality foods division – a profitable business but deemed non-core – was sold in two parts. Unigate bought the UK operations in January this year, while the Dutch part of the division was sold separately to Germany’s Carl Kuhne in March. The next step for AF is the sale of its chilled foods division, which makes pre-packed salads. The division is made up of three firms and, with AF’s willingness to sell the divisions piecemeal, it may yet do the same here.

French get smart

With France fast becoming one of Europe’s hottest hi-tech regions the printing sector is taking advantage. Smart cards have been widespread in France for a couple of years now. Even the classroom is a key market, with kids using them to buy school dinners. This has been noticed by Lazards’ oddly named investment vehicle Financiere Industrielle Gaz et Eaux (SFIGE). Last month it took a Ffr200 million ($32.3 million) stake in Francois-Charles Oberthur, the French smart card manufacturer. The deal freed up cash for acquisitions and the same day, Oberthur bought part of the smart card business of the UK’s De La Rue for GBP200 million ($317 million). The deal is the realisation of De La Rue’s strategic review, with most of the cash going to shareholders.

For SFIGE, the stake represents another printing-related investment for a mixed portfolio. Earlier this year, it took an eight per cent stake in Pearson as part of the media giant’s exit from Lazards. SFIGE – which is part owned by Eurafrance – invests in major French corporates like Danone and St Gobain.

A similar trend is underway in Sweden, where the Wallenberg investment vehicle, Investor, departed from its usual strategy of investing in Swedish blue chips and took a 25 per cent stake in Internet service provider Spray for $61 million. Spray was set up by two Swedes in 1995, and is currently taking on US giants like Yahoo! and AOL by offering Internet services in European languages, an area it feels the US companies have neglected. Around half of the money is earmarked for advertising, and while it is still running at a loss, it intends to float on either Nasdaq or a European bourse next Spring. Although growth through acquisition is not planned, this serves as an example of the risks investors are prepared to take in the hi-tech world.

Concentric circles Europe

Hi-tech M&A is still dominated by the US cyberkings looking to crack the European markets. Three more US corporates made forays into the European IT market: Cisco Systems and NTL both made small but important acquisitions in the UK. But a new player also arrived to gain access to the European e-conomy via M&A. Californian website host Concentric Networks paid GBP146 million – a 62 per cent premium – for London-based Internet Technology Corporation. The deal structure is an innovative mix-and-match’ structure, with ITG shareholders being offered Concentric Nasdaq shares plus a cash bonus and an option to take stock in ITG’s non-ISP interests, which is not part of the deal and will be spun off. ING Barings’ IT guru Julian Briant advised ITG following a good summer in which the bank has been appointed by Minorplanet systems. This follows the loss of Misys to UK boutique Greenhill & Co last December.

US giants may be making waves across Europe, but Thomson Financial Securities Data points that much of it is actually accelerating intra-European M&A. Over the past four weeks, 88 per cent of M&A announcements involved a European target and acquiror. While much of this is domestic’, the trend is that European corporates are not treating Europe as a homogenous zone, but targeting two or three key markets. It will be another decade before we see whether the European view will succeed, or if Walmart’s planned blanket coverage across the Old World will be the blueprint for the third millennium.