Carrefour is the world’s second company in retail distribution and one of the
foremost French corporate groups. In recent years, the company has experienced
varied fortune due to mistakes in its pricing policy and positioning, but the
company remains effective. Now it seems that the group is threatened … by
its shareholders. A story that says a great deal about the opposition between
financial and industrial rationales.
The story begins two years ago when Bernard Arnault (LVMH chairman and main
shareholder, richest man in France) and the American Capital Colony, an investment
fund specializing in real estate, bought into Carrefour’s capital and became
significant shareholders of that company through the intermediary of a joint
Luxemburg subsidiary, Blue Capital. Their objective, apparently, was to make
a quick profit by pushing the company to sell part of its real estate assets.
This strategy was obviously compromised by the real estate crash: hard to find
buyers at an interesting price under the present circumstances and for the foreseeable
future. Meanwhile, pending better days, the interest on the debt contracted
to make that purchase significantly exceeds the dividends paid out by Carrefour,
in spite of the ousting of its CEO, replaced by a boss with a suppler spine.
So a new plan formed in the fertile minds of the “investors”: sell
the group’s Asian and South American subsidiaries and concentrate on Europe.
This idea was barely out before it infuriated the Chinese authorities, who are
on the lookout to maintain a balance of power in retailing and for whom Carrefour
serves as a counterbalance to the invasive presence of Wal-Mart. In the end,
the sale of the Chinese subsidiary was abandoned. But a possible transfer of
the South American subsidiaries – undoubtedly to Wal-Mart – remains on the agenda
for the next board meeting.
The interest in such a sale is purely financial: more or less, Arnault and
Capital Colony bought their shares for 50 Euros and today they’re worth 30.
The projected sales would allow distribution of an exceptional dividend of about
10 Euros; the wherewithal for Arnaud and company to begin to break even, as
long as the operation does not reduce the company’s share price – which is far
from being a given.
In fact, Carrefour is a group that stands today on two pillars: stable European
(and especially French) markets that, however, are mature markets with limited
sales-growth potential; and the much more dynamic emerging markets, with growth
rates that may reach 30 percent per year. While the European markets have assured
the foundation for the group’s turnover and profits, the emerging markets constitute
its main source of growth. Without them, the group’s profit prospects are very
limited. Under these conditions, it is not even certain, should the sale proceed,
whether it would ultimately be profitable, to the extent it led to a drop in
the share price.
In summary, what is happening today to Carrefour vividly illustrates the contradictions
that may exist between short-term financial interests and long-term strategies.
Colony and Arnault behave like predators, buying to resell at a profit, dismembering
their prey in the interim and depriving it of prospects for development by prospectively
cashing in those prospects financially. This is obviously not in the interest
of the ongoing concern.
But in what respect do these internecine wars between capitalists interfere
with the general interest? There’s a certain logic to Carrefour’s international
development. It’s in the interest of the receiving country, which profits from
this savoir-faire in terms of the quality of the company and training of the
work force. And it’s in the interest of the originating country, in this instance,
France, which promotes the savoir-faire it has acquired in Europe within emerging
markets. We may also consider that the foreign development of big French retail
groups favors the export of some products that are sold by them.
This anecdote vividly illustrates the contretemps to which the transfer of
company property into the hands of entities moved by purely short-term financial
rationales leads. For years, pension funds have claimed that they offer perspective,
since, managing their clients’ money over the long term, they are trustworthy
investors, allowing companies the time to put their investments to work. Today,
we know that that is a lie, with pension funds’ average holding period for shares
lasting no more than six months on average. Finance is carried by the concern
for maximizing the contraction in the time required to realize value, whatever
the price for the enterprises involved and the people who work there.
A theoretical remark in conclusion: if standard financial theory were correct,
investing in a company to sell it off in pieces would be perfectly justified
because the firm is nothing but an aggregation of assets that don’t have more
value together than broken up. This year’s Nobel laureates, among others, have
shown that that theory is mistaken and that a company is a bit more than that.
Translation: Truthout French language editor