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Adding Mass to the Mix: Arnault Takes Stake in Carrefour

The king of luxury has arrived in the supermarket aisle.

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PARIS — The king of luxury has arrived in the supermarket aisle.

LVMH Moët Hennessy Louis Vuitton chief Bernard Arnault said Wednesday that he has teamed up with Los Angeles-based private equity fund Colony Capital to take a joint 9.1 percent stake in Carrefour, the world’s second-largest retailer after Wal-Mart.

Groupe Arnault, which is Arnault’s private investment firm, and Colony said they purchased 64 million shares of Carrefour. The cost of the investment was not disclosed, but was estimated to be more than 3.5 billion euros, or $4.59 billion at current exchange, based on recent market values.

Arnault and Colony characterized the move as a “strategic, industrial and long-term investment” based on Carrefour’s leading market position and its “strong growth potential.” The investors said they would work with the Halley family, Carrefour’s largest shareholder, and its current management.

But news of their investment coincided with turbulence within Carrefour’s management ranks. Late Wednesday, the French retailer said its embattled chairman, Luc Vandevelde, has stepped down and will be replaced by Robert Halley.

“The supervisory board thanks Luc Vandevelde for his contribution and for his decision inspired by the interests of Carrefour, its shareholders and employees,” the company said in a statement.

Carrefour also confirmed its confidence in the current president of the management board José Luis Duran, who has been in that role for two years.

Carrefour is slated to report its full-year earnings today, and investors no doubt will seek clarification of future strategy.

A spokesman for Arnault declined to comment on whether the business titan planned to increase his stake in Carrefour. However, it is understood Arnault and Colony want the retailer to pursue a more aggressive strategy and improve its share performance.

Speculation about a hostile play for Carrefour has been building since the beginning of the year. That’s when the Halley family began clashing with Vandevelde after he bought almost 10 million euros, or $13.1 million, of Carrefour shares in the open market.

That purchase prompted the Halleys to ask Vandevelde, who runs Change Capital Partners, the owners of Jil Sander, to step down as chief of their Citra holding company, through which they control 13 percent of Carrefour.

This story first appeared in the March 8, 2007 issue of WWD.  Subscribe Today.

With the Halleys’ blessing, Vandevelde was named chairman of Carrefour two years ago to replace Daniel Bernard, with whom the Halleys had disagreed over strategy. Bernard was a main architect of the merger in 2000 of Carrefour and the Halley-owned Promodes, which, at that time, was run by Vandevelde. Though the deal made Carrefour into a global retailing behemoth, it never resulted in the synergies forecast by Bernard.

Carrefour’s shares have fared poorly over the last decade, losing roughly half their value.

The retailer, which operates some 12,000 hypermarkets, supermarkets, hard discounters and convenience stores in 29 countries, has struggled most to stave off fierce competition at home and increased pressure from French chains such as Auchan and Leclerc. It also has come under increasing pressure from retailers such as Wal-Mart and Tesco plc in some overseas markets, especially in China and elsewhere in the Far East.

Vandevelde and Duran, who was promoted to president of the management board in tandem with Vandevelde, tried to streamline Carrefour by selling unprofitable operations in Mexico, South Korea and Japan while bulking up more profitable businesses elsewhere, including in Poland.

Nonetheless, the company has met with mixed success. Most recently it disappointed investors in January with weak fourth-quarter sales at home in its core hypermarkets. The stock has rebounded since February, pushed by possible takeover scenarios.

Wednesday’s events sent shares in Carrefour down 2 percent to close at 52.80 euros, or $69.27, on the Paris Bourse.

Founded in 1991, Colony has investments totaling $19 billion, primarily in real estate, gaming and hospitality. In concert with Colony and Groupe Arnault, Axon Capital also took a 0.7 percent stake in Carrefour.

This is not Arnault’s first investment outside the luxury realm. Via LVMH’s L Capital investment arm, the luxury titan has stakes in the video game retailer Micromania and the French restaurant concern Groupe Bertrand.

Last month, in disclosing a 30 percent leap in LVMH’s 2006 net profits, Arnault played down the possibility of acquisitions for the luxury group, which counts some 50 brands in fashion, leather goods, perfumes and cosmetics, wines and spirits, watches and jewelry and retailing.

“We have an optimized portfolio,” he said at the time. “It’s certainly not a favorable environment to make acquisitions.”

Still, Arnault has been actively looking to spend on other fronts. In October he formed a venture with longtime business ally Albert Frère to acquire mainly European companies via a new fund of 1 billion euros, or $1.31 billion at current exchange. That entity is expected to announce its first transaction shortly.

Arnault, considered the richest man in France, is also said to be mulling a small personal investment in Endemol, the producer of such TV shows as “Big Brother.”

Groupe Arnault has substantial investments in real estate in France, Russia and Asia, as well as stakes in listed companies. Its most recent investment was in the French travel agency Go Voyages.

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