THE SKEPTIC: Carrefour Escapes A Family Discount

6 March 2008
Dow Jones International News

PARIS (Dow Jones)--The decision by the Halley family to break up a shareholder pact and forego double-voting rights on its shares in Carrefour should further focus the board of Europe's biggest food retailer on improving returns.

For one thing, power within Carrefour's shareholder ranks shifts to Blue Capital, an investment fund owned by Colony Capital and Groupe Arnault, from the divided Halleys.

Blue Capital has 9.1% of Carrefour's shares but is a year away from earning double-voting rights on that stake. It may well buy more stock in the meantime, particularly as members of the Halley family are now free to sell their share of the family's aggregate 13% holding.

As it is, Colony and Groupe Arnault - the investment company of Bernard Arnault, who is the controlling shareholder and chairman of luxury goods company LVMH have already brought their influence to bear in helping Carrefour emerge from a slump. Releasing value from its multibillion-euro property holdings and shrewder decisions over which foreign markets to enter and exit have proved key.

But the significance of the Halley move goes beyond that.

There is much research that shows family-controlled listed companies tend to outperform other companies.

An index of European companies with a minimum 50% family stake outperformed the Morgan Stanley Capital International Europe index by an average of 16% a year from 2001 to 2006, the investment bank's research found recently. In France, the success over the years of Bouygues, LVMH , Michelin and PPR, owned by the Pinault family, are good examples.

But there's at least one important caveat.

Working out what to do with ownership and management as one generation succeeds another is particularly important at the family enterprise.

Because when it goes wrong, it often goes spectacularly wrong, destroying shareholder value if not putting the whole business in jeopardy. In Europe, take the Moores family at U.K. shopping and betting company Littlewoods, the Sainsbury family at the eponymous food retailer or the Agnelli family at automaker Fiat.

The Halley family's decision, given that members couldn't agree on a united approach to their investment, removes the risk of a family discount being slapped on Carrefour stock.

It's the sort of problem Arnault is all too aware of. He seized control of LVMH in the late 1980s after being invited in by its then-CEO to help settle a fight for control of the company between the founding Vuitton and Moet families.

Whether Carrefour CEO Jose-Luis Duran will successfully meld the savvy advice from Blue Capital with the niceties of running a business of that size remains to be seen.

Duran announced solid but inspiring 2007 results for Carrefour Thursday, with a slack French market holding back overall performance, leaving net profit up only 1.4%. But the stock price was up 4.5% on the Paris bourse.

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