Chile's Falabella agrees to buy D&S for $3.7 billion
Chile's SACI Falabella, the country's biggest department-store chain, agreed to buy supermarket owner Distribucion Y Servicio D&S SA for $3.7 billion to form Latin America's second-largest retailer and expand internationally.
Falabella will exchange 0.11 share for each D&S stock, D&S Vice President Hans Eben said in an interview yesterday. That values each D&S stock at 300 pesos, 13 percent more than the closing price yesterday.
D&S and Falabella together employ 100,000 workers and will overtake the Paulmann family's Cencosud SA as Chile's biggest retailer and become Latin America's second largest after Wal- Mart de Mexico SA. The combined company plans to speed up expansion outside of Chile, tapping consumer demand in Peru, Argentina and Colombia. Shares of D&S headed for the biggest three-day surge in a decade.
``Chile is a very small country, so it favors us enormously to form a true Chilean multinational,'' Eben said. ``This deal was done to go overseas.''
The combined company will have a stock market value of $15 billion, making it the Chilean stock market's second biggest after Empresas Copec SA, he said. Falabella investors will own 77 percent of the company, while D&S's will own 23 percent.
Shares Advance
Shares of D&S, which owns Chile's biggest supermarket chain, have surged 26 percent since May 15 on speculation about the merger, its biggest three-day rally in a decade. They rose 28.23 pesos, or 11 percent, to 292.5 pesos at 11:58 a.m. in New York. Falabella fell 13.9 pesos, or 0.5 percent, to 2710 pesos.
``The synergies are enormous,'' Ben Laidler, an equities analyst with UBS Pactual in Santiago, said. ``Falabella has a multi-format retail strategy, with consumer finance roping it all together. One bit was missing: supermarkets.''
The deal gives Falabella the expertise to speed up its South American supermarket expansion, Laidler said by phone. ``A lot of these markets remain under-penetrated by formal retail and consumer finance and that's what Falabella does well.''
Falabella's profit as a percentage of sales was 8.2 in 2005, compared with 3.6 percent at Wal-Mart Stores Inc., the world's largest retailer, and 4.6 percent at Target Corp., the second-biggest U.S. discount chain, according to a Falabella presentation last month.
Board Seats
D&S will get four seats on the new company's 11-member board once it gets regulatory and shareholder approval in the next year. JPMorgan Chase & Co. advised on the transaction.
The agreement improves the combined entity's position in terms of scale, access to capital and diversification, the companies said in a joint statement.
''Let's not forget that these are two Chilean companies that must go out and compete with global retail giants like Carrefour, Casino, Walmart and others,'' Falabella Chairman Reinaldo Solari told reporters.
Falabella, controlled by the Solari-Cuneo and Del Rio families, plans to spend $1.4 billion over the next four years to double stores in Chile, Argentina, Peru and Colombia to 279.
Falabella's 144 department and home-improvement stores and financial services units generated annual sales of $4.38 billion. DYS, controlled by the Ibanez family, has 125 supermarkets and shopping centers in Chile and sales of $3.2 billion last year.
Combined, their sales would exceed those of Cia. Brasileira de Distribuicao Grupo Pao de Acucar, Brazil's biggest retailer, which last year had $6.38 billion. Wal-Mart de Mexico would remain Latin America's top retailer with $18 billion in sales.
Seven consecutive years of economic growth have bolstered consumer demand in Chile, which has the highest per-capita income in South America. Internal demand, which includes consumer spending and investment, will likely expand 6.8 percent this year, the central bank said this week.
(Published by Bloomberg, May 18, 2007)