Funds approached Carrefour to buy Dia unit: sources

By Dominique Vidalon and Julien Ponthus

PARIS (Reuters) – Some private equity funds are trying to convince Carrefour (CARR.PA: Quote, Profile, Research) to shelve plans to list its Dia discount unit due to volatile market conditions and instead sell it outright, sources close to the matter said.

The proposal comes amid mounting opposition to the largest European retailer’s plan to spin off 100 percent of Dia and part of its Carrefour Property unit.

“They have been approached by several funds and these are big ones,” one source close to the matter told Reuters.

The private equity funds’ identity could not immediately be determined but one of the sources noted that they would need to be big enough to spend at least around 3 billion euros ($4.26 billion) for Dia.

Last month’s decision by French media group Lagardere (LAGA.PA: Quote, Profile, Research) to postpone the initial public offering of its 20 percent stake in pay-TV group Canal Plus due to market volatility following the earthquake disaster in Japan, has stoked speculation other listing candidates could follow suit.

Carrefour shares were up 2.4 percent at 32 euros at 1028 GMT, accelerating their gains after the Reuters report, and were the top gainer in the French CAC 40 index (.FCHI: Quote, Profile, Research).

“Selling Dia is the only way they (Carrefour) will get out of hot water. An outright sale. This would be the best outcome for them because money goes right back to shareholders. A 100 percent spin-off doesn’t bring money right away,” a banker close to Carrefour said.

Carrefour, which announced the plans for a partial IPO of its real estate unit and a full flotation of Madrid-based Dia in a bid to revive its flagging share price and boost shareholders’ returns, declined to comment.

RBS analyst Justin Scarborough was skeptical about the chances of a deal.

“They’ve (Carrefour) made it pretty clear in the past that they’ve looked at options for Dia for quite some years … but clearly they haven’t got the price they wanted,” he said.

However, he added if a deal could be struck around 3 billion euros it would be slightly positive for the shares since that valuation would be slightly higher than that implied in the spin-off plan.

Kepler in a note this week valued Dia at 3.3 billion euros, or 33 times Enterprise Value to Sales and 6 times Enterprise Value to EBITDA.

MOUNTING OPPOSITION

The French retailer is in the midst of a turnaround plan under new management and has struggled with waning investor confidence after two profit warnings last year.

Under pressure from key shareholders Colony Capital of the U.S. and Groupe Arnault of France, Carrefour came up with a spin-off plan which should deliver 4 billion euros in special dividends. (ID:LDE72117P: Quote, Profile, Research)

The plan has, however, failed to impress analysts who were disappointed by its cost. Activist shareholder Knight Vinke is said to be trying to rally opposition because it believes the current plan might not create enough value for shareholders.

Carrefour shares have lost 12 percent since early March when the plan was announced, underperforming a 5 percent decline in the European retail sector (.SXRP: Quote, Profile, Research).

Carrefour needs to win 75 percent support in a shareholder vote in June in order to proceed with the spin-offs.

Earlier this week Knight Vinke told Reuters it was talking to major Carrefour shareholders about the spin-off plan, fuelling speculation it might be opposed to the demergers.

Knight Vinke typically buys small stakes in large European companies and then persuades other investors to join its campaign to change the target’s strategy.

Knight Vinke’s stake is small compared with the those of Colony and Groupe Arnault, which together control 13.5 percent of Carrefour’s capital and 20.3 percent of its voting rights.

Herve Defforey, one of the founding-family shareholders in Carrefour on Friday told daily La Tribune he opposed the plan.

“I am just a small Carrefour shareholder. But I will vote against it,” Defforey said.

(Additional reporting by Nina Sovich in Paris and Mark Potter in London; Editing by Jon Loades-Carter)

($1=.7035 Euro)

(Reporting by Dominique Vidalon and Julien Ponthus; Editing by Hans Peters and Jon Loades-Carter)

Funds approached Carrefour to buy Dia unit: sources