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Arnault, Colony Capital Buy 9.8% Stake in Carrefour (Update5)

By Ladka Bauerova

March 7 (Bloomberg) -- French billionaire Bernard Arnault and Colony Capital bought 9.8 percent of Carrefour SA, intensifying speculation that Europe's biggest retailer is a takeover target as its chairman faces pressure to resign.

The Halley family, Carrefour's biggest investor, ousted Chairman Luc Vandevelde from the family's own holding company on Feb. 13. The Wall Street Journal reported that Vandevelde resigned from Carrefour at a board meeting today.

The value of the Halleys' 13 percent stake has almost halved since they sold their Promodes SA chain in 1999 to Carrefour, which lost customers to discounting by French rivals E.Leclerc and Groupe Auchan SA. The stake acquired by Arnault and Colony in Carrefour, which owns more than 12,000 outlets in 29 countries, is worth about 4 billion euros ($5.2 billion).

``Arnault probably thinks that Carrefour passed its lowest point and will find dynamism in the years to come,'' said Guy Francheteau, an analyst at Paris-based Fideuram Wargny Securities with a ``hold'' recommendation on the stock. ``I think it's a financial investment for 4 to 5 years. He chose this timing to enter at the low point in the cycle.''

Takeover speculation has helped lift Carrefour stock almost 20 percent this year. Breaking Views reported Feb. 28 that Vandevelde had proposed a buyout of Carrefour.

Sales Disappointment

Carrefour is the world's largest superstore operator, with least 947 such outlets in Europe, Latin America and Asia, according to its Web site. Bentonville, Arkansas-based Wal-Mart Stores Inc. is the world's biggest retailer.

In January, Carrefour reported sales that missed analysts' estimates, blaming mild weather and increased competition with rivals such as Casino Guichard-Perrachon SA.

Chief Executive Officer Jose Louis Duran, appointed when Vandevelde took the chairman's post at Carrefour in 2005, cut prices, weighing on margins, to regain lost French customers.

Carrefour shares added 72 cents, or 1.3 percent, to 54.62 euros at 12:51 p.m. in Paris, rebounding after the Journal's report that Vandevelde resigned. The shares earlier jumped to their highest since 2002, giving the company a market value of about 38 billion euros, and surged 3.5 percent yesterday as La Tribune reported Vandevelde's potential ouster.

`Strategic Investment'

Analysts have said private-equity companies may be attracted by retailers' real-estate assets. Elsewhere in Europe, a group led by CVC Capital Partners Ltd. is considering a bid for U.K. supermarket company J Sainsbury Plc.

Arnault and Colony ``may think there is some value to be extracted from the real estate and are buying now ahead of possible future events,'' said Vincent Hamel, an analyst at ING Wholesale Banking, who has a ``hold'' rating on Carrefour stock.

Groupe Arnault and Colony, which specializes in real estate, today said they purchased 64 million shares. ``It's a strategic and industrial investment,'' the two companies said in their e-mailed statement. ``Both investors expect to work alongside the Halley family and the company's management.''

Aurelie Launay, a press attache for Carrefour, declined to comment. Arnaud Monnin, a spokesman for the Halley family, couldn't immediately be reached to comment.

Los Angeles-based Colony Capital, run by billionaire Tom Barrack, is a partner in Accor's casino unit in Europe.

Arnault's Acquisitions

Bernard Arnault is the chief executive officer of LVMH Moet Hennessy Louis Vuitton SA, the world's largest luxury-goods company. He entered LVMH as a private investor and became the chairman after gaining control of a 43 percent stake in 1989. He bought fashion brands from Givenchy to Christian Lacroix and Kenzo and added Chateau d'Yquem to its wine portfolio in 1996.

LVMH continued to acquire stakes in a host of luxury companies, including Prada, Fendi, TAG Heuer watches and Donna Karan International. Arnault's Groupe Arnault holding company last month bought travel company Go Voyages for 281 million euros from Accor SA, Europe's second-biggest hotel company, and considered buying Ford Motor Co.'s Aston Martin sports cars.

``Mass market retail has significant growth prospects, especially as food chains become more and more places where you can buy everything from boxers to perfume,'' said Armando Branchini, vice-president of Intercorporate, a Milan-based consulting company. ``Arnault is seeking good investments that have the potential to generate good growth and high returns.''

Vandevelde's ties to the Halley family go back to the 1990s, when he headed Promodes. He became Carrefour's chairman in 2005 and bought $13 million of Carrefour stock after the Halleys ousted him from their holding company.

He also heads Change Capital Partners LLP, a private-equity firm that owns German fashion label Jil Sander AG. Before founding Change, Vandevelde spent four years as chairman of Marks & Spencer Plc, the U.K.'s largest clothing retailer, and closed or sold all of its businesses outside Britain.

``It would be surprising to see Vandevelde leave Halleys' investment company and remain chairman of their main asset,'' said Cedric Lecasble, an analyst at Paris-based Kepler Equities with a ``hold'' recommendation on Carrefour stock.

The Halleys rebuffed Vandevelde's idea for a private-equity buyout of Carrefour, last month's Breaking Views report said.

To contact the reporter on this story: Ladka Bauerova in Paris at .

Last Updated: March 7, 2007 07:55 EST