Cencosud/Bretas Won’t Harm Competitors

The acquisition of Brazilian supermarket operator Bretas by the second largest Chilean supermarket operator shouldn’t have a serious effect on the local market, according to Barclays. Cencosud agreed to buy Bretas for BRL1.35bn. Of the price, BRL1bn is due at closing, BRL100m at the end of 2011 and BRL250m at the end of 2014. According to Cencosud, the deal is being financed through three bank loans totaling $290m. In a research report analyzing the effect of the acquisition on CBD, the parent of Pao de Acucar, Barclays says the merger will have on a “marginal effect” on the largest Brazilian supermarket by market share. The deal seems to be in line with a sector trend in which regional chains are selling out to larger retailers, according to the report. CBD will likely be an active consolidator in the market, according to Barclays. The deal represents Cencosud’s first foray into the states of Minas Gerais and Goias, according to the company. Cencosud says no financial advisors were used. CreditSuisse says the acquisition price, with an implied multiple of 0.5x P/S for 2010, is reasonable compared to recent comparables, which have occurred in the 0.6x to 0.9x P/S area. Celfin meanwhile says the transaction represents EV/S of 0.64x for 2009 and 0.54x for 2010E and expects Cencosud to issue additional debt to finance the transaction, along with a potential acquisition of the 38.6% stake it does not own in its Argentine supermarket unit Jumbo Retail. A spokeswoman says the $290m debt portion of the deal will come from 3 bi-lateral loans. Celfin says the deal strengthens its buy recommendation for the stock. The deal follows Cencosud’s acquisition of the GBarbosa supermarket chain in Brazil for $430m in 2007.