Carrefour defends Dia spin-off and keeps targets

PARIS Tue May 17, 2011 10:25am EDT

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PARIS (Reuters) - Carrefour (CARR.PA), the world's second-biggest retailer which is struggling against tough trading conditions, said discount chain Dia is likely to be valued at over 4 billion euros when it is spun-off in July.

The company believes separating Dia will allow it to focus on its turnaround plan and will highlight the value of the chain, which is the world's third-biggest hard-discount group behind German groups Aldi and Lidl.

"Carrefour is not meant to be a conglomerate," Chief Executive Lars Olofsson told journalists.

Olofsson also vowed to revive controversial plans to list part of Carrefour's property business in the future.

Carrefour said on Tuesday that while western European markets remained tough amid rising food prices, results from its revamped hypermarket stores were encouraging.

France, which contributes about 40 percent of sales was underperforming but growth in Latin America and Asia was strong. The firm still aims to grow sales and operating profit in 2011.

Carrefour is under pressure to boost its share price from top investors French luxury tycoon Bernard Arnault and U.S. private equity firm Colony Capital, who have seen the value of their stakes, bought largely in 2007, drop around 40 percent.

Carrefour had originally intended to spin off 25 percent of its European property business alongside Dia, but shelved that plan earlier this month following opposition from other shareholders, such as U.S. activist investor Knight Vinke, and amid talk of boardroom divisions.

At the same time it fired the head of its French business, saying its performance was unsatisfactory and sparking concerns about progress in its turnaround plan.

Finance chief Pierre Bouchut pegged Dia's Enterprise Value which includes debt, at over 4 billion euros.

RBS analyst Justin Scarborough thinks that valuation, including over 400 million euros of debt, is too high.

The analyst said that would value Dia at about 8.4 times core earnings forecasts for 2011, compared with a sector average of 6.5 times.

"We struggle to derive a strongly positive investment case (for Dia)," Scarborough said, adding that he thought Carrefour stock was probably a little oversold.

At 1316 GMT, Carrefour shares were up 1.19 percent at 30.62 euros, outperforming a 0.35 percent decline on the STOXX Europe 600 retail index .SXRP.

Up to Tuesday, the stock had underperformed that index by 6 percent this year.

Carrefour chief executive Lars Olofsson told reporters he had been approached by potential bidders for Dia, but that nothing had come of it.

Olofsson reiterated the group would still look to list part of its property business in future, but declined to say when, or when he would appoint a new head of its French business.

"The sooner, the better," he said, when asked.

Olofsson told journalists he would continue to oversee French operations even after the company finds a replacement for McCann. The priority for France was to come up with a "coherent" pricing strategy and increase market share, he said.

RISING FOOD PRICES

Carrefour is in the midst of a three-year restructuring plan aimed at reversing years of underperformance in its main western European market and in September announced a 1.5-billion-euro revamp of its core hypermarket business.

It has since been hit by profit warnings linked to its Brazilian business, faltering trading in its home French market and mixed results from the new Carrefour Planet hypermarkets.

The group, second only to U.S. group Wal-Wart (WMT.N) by annual sales, said economic conditions in its western European markets remained challenging and that, like most rivals, it had had to raise prices to account for higher input costs.

Two competitors in France had yet to increase prices and Carrefour would review its position if they continued that strategy, Olofsson told analysts.

"We are not going to start a price war but we are not going to lose competitiveness," he said.

CFO Bouchut said an ambitious profit goal for 2013 set out with the launch of Carrefour Planet was still attainable but hinged on delivering on the turnaround plan.

Last Friday, Carrefour published the listing prospectus for Dia and its key targets ahead of a July 5 listing, which requires approval from shareholders on June 21.

These included plans to accelerate Dia's store openings and expansion into emerging markets over the next three years.

( Additional reporting by James Regan in Paris and Mark Potter in London)

(Editing by Caroline Jacobs and Elaine Hardcastle)

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