CARREFOUR DEAL FOR PROMODES CALLED REBUFF TO WAL-MART

PARIS -- Carrefour SA here, France's largest retailer, flashed a "Keep Out" signal in the direction of Wal-Mart Stores, Bentonville, Ark., when it said last week it was acquiring another French giant, Promodes SA, Mondeville, France, in a deal that would create the world's second-largest retailer.The friendly takeover is to take the form of a stock swap that values Promodes at $16.7 billion and would

PARIS -- Carrefour SA here, France's largest retailer, flashed a "Keep Out" signal in the direction of Wal-Mart Stores, Bentonville, Ark., when it said last week it was acquiring another French giant, Promodes SA, Mondeville, France, in a deal that would create the world's second-largest retailer.

The friendly takeover is to take the form of a stock swap that values Promodes at $16.7 billion and would create a new group called Carrefour. Carrefour and Promodes had sales of $60.4 billion last year -- or less than half Wal-Mart's 1998 volume of $138 billion.

U.S. dollar figures are translated from the euro at current exchange.

The new entity would have 8,800 stores in 26 countries by Dec. 31, including 3,200 discount stores, 680 hypermarkets and 2,600 supermarkets.

Daniel Bernard, chairman and chief executive of Carrefour, would run the new group, and Luc Vandevelde, who had been tapped to run Promodes, would become the group's executive vice president. Bernard said he would ask the board of directors to appoint Paul-Louis Halley, the president of Promodes who had already announced his retirement, to head a new strategic advisory committee.

For now, the Carrefour-Promodes combination would give the French control of the biggest retailer on their home turf as well as throughout Europe, where it does 85% of its business, vaulting over Germany's Metro AG, whose sales totaled $49 billion in 1998.

"It is our goal to together win the global distribution battle," Bernard said at a news conference here Monday. "The new group will create value and prove beneficial for our employees."

The deal was approved last week at separate board meetings, following talks between Carrefour and Promodes that had been under way since June.

Bernard projected the new Carrefour would produce double-digit sales gains through 2002, while estimating earnings from operations during that period would double to $1.15 billion after amortization. He said no layoffs were planned for the 240,000 employees.

European observers said Carrefour and Promodes agreed to merge for one reason -- Wal-Mart's arrival in Europe.

The U.S. company's move into Germany last year and its pending purchase of the U.K. food retailer Asda plc for $10.3 billion earlier this year have irrevocably changed the retail landscape in Europe and European companies will now have to adapt or get swept aside, observers said.

"There's a bit of a race on now," said Richard Hyman, chairman of London-based consultants Verdict Research. "By the end of the year there are going to be several more pan-European deals because everyone is jockeying for position. Wal-Mart's arrival has created a domino effect."

Analysts admitted that Wal-Mart remains tiny in international markets compared with the likes of Carrefour and Promodes, which are much more developed in the Far East and South America than Wal-Mart. But Wal-Mart's advantage is its sheer scale -- with sales of close to $160 billion estimated for 1999, it would still be almost twice as large as the combined Carrefour-Promodes.

Carrefour-Promodes combined sales for this year are estimated at $65 billion by the Boston office of Management Ventures, a consulting firm. If one includes sales from joint ventures in which Promodes is a minority shareholder, total 1999 estimated volume for the merged French companies would come to $85 billion.

So European companies now have a choice -- eat or be eaten. Tesco and J. Sainsbury plc in the United Kingdom; Auchan, Casino and Leclerc in France; Ahold in the Netherlands; Metro in Germany; and Delhaize "Le Lion" in Belgium now must rush to acquire other companies in Europe if they are going to compete with Wal-Mart, observers said.

These are among the companies that are the likeliest candidates for mergers or acquisitions in the months ahead, analysts said.

Hans Gobes, spokesman for Ahold, told SN that Ahold "has our little list of the companies we feel would be very well-placed within Ahold. This [the Carrefour-Promodes merger] will certainly speed up the consolidation process in Europe."

There's only one problem, analysts added -- these are the same companies Wal-Mart has to be targeting as it plots its future European expansion.

There also is the possibility that Wal-Mart might try to break up the Carrefour-Promodes deal with an offer of its own for one of the French companies. After all, the U.S. company bought Asda even though Asda had reached an agreement to merge with the British retailer Kingfisher plc.

If Wal-Mart, or another European company, doesn't try to break up the Carrefour-Promodes deal, the next likely candidates for takeover or merger in France are Casino, Auchan and Leclerc, European analysts said.

Ken Teague, managing director of Reach Marketing, Norwalk, Conn., also said Wal-Mart was unlikely to buy its way into France or other international markets at this point.

"The Carrefour-Promodes deal is going to make it more difficult for Wal-Mart in Europe and as a result it's probably going to increase its focus on expansion here in the United States," he said.