(Bloomberg) -- A $20 billion takeover proposal by Alimentation Couche-Tard Inc. for France’s Carrefour SA (OTC: CRRFY ) faces initial government opposition, casting doubt on prospects for the transatlantic retail deal.
The pandemic has demonstrated the importance of domestic control over the food supply, Finance Minister Bruno Le Maire said. Carrefour (PA: CARR ) and other grocers have faced surges in demand during lockdowns, with consumers clearing shelves of some items such as flour.
“From this point of view, the idea of Carrefour being bought by a foreign competitor -- on the face of it, I am not in favor of this deal,” Le Maire said on France 5 television. Carrefour shares slumped.
While the government has the power to formally block the takeover, the comments may also indicate that officials want to set conditions before deciding whether to clear the deal.
Le Maire’s remarks were “rather a posture to be invited to the negotiating table, in our view,” Clement Genelot, an analyst at Bryan Garnier & Co., wrote in a note. He pointed to an absence of overlap between the companies.
Carrefour shares fell as much as 7.4% in Paris trading. They had climbed 13% on Wednesday, as Couche-Tard’s stock regained some ground in Toronto following Le Maire’s comments. The shares still closed down 9.2%, their worst day since last March.
Couche-Tard said Wednesday that it had submitted an offer at 20 euros a share, financed largely in cash. A takeover would combine Carrefour’s extensive European base with the Canadian company’s North American-focused network of convenience stores and gas stations. A representative for Couche-Tard did not reply to a request for comment about the French finance minister’s remarks.
The French government has voiced opposition to deals it ended up clearing in the past after imposing some conditions, as was the case with General Electric (NYSE: GE ) Co.’s 2015 purchase of Alstom (PA: ALSO ) SA’s energy assets.
The boards of both companies haven’t yet met, so Carrefour considers that any posturing by the government is premature, according to a person familiar with the negotiations who declined to be identified by name.
Le Maire said a decree he introduced in 2019 on state screening of foreign investments could allow the government to block the deal. Those rules enable the finance ministry to block a non-European investor from holding more than 25% of the voting rights in a listed company in certain sectors.
When the pandemic hit, the government cut the threshold for its investment screening to 10%, saying the crisis could make some companies vulnerable to foreign takeovers.
As well as covering sectors like aerospace and cybersecurity, the decree applies to the “production, transformation and distribution” of agricultural produce when those activities contribute to “objectives of national food security.”
“If this deal continues, food sovereignty comes before everything,” Le Maire said. “People watching will ask themselves what the impact on jobs will be at France’s biggest private sector employer and whether food sovereignty will be guaranteed.”
Some analysts said Le Maire sounded clear and firm, leaving little room for negotiation.
“The government has the last word -- game over,” Fabienne Caron, an analyst at Kepler Cheuvreux, wrote in a note to clients.
Carrefour, which operates everything from convenience stores to giant suburban hypermarkets, has a workforce of about 105,000 in the country, making any deal especially sensitive for the government. France has a history of objecting to foreign takeovers of its blue-chip companies.
In 2005, French politicians frowned on talk of an approach from PepsiCo (NASDAQ: PEP ) Inc. to Danone SA (OTC: DANOY ), leaving any such deal dead in the water. More recently, deals such as the GE-Alstom transaction were cleared with stringent conditions. That didn’t prevent GE from implementing job cuts later on.
Shares of another French retailer that could be a potential takeover target, Casino Guichard-Perrachon SA, fell after Le Maire’s comments.
(Updates with Casino shares in last paragraph)
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