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Case: Carrefour S.A. introduces topics of international finance including interest-rate parity, currency risk and the Eurobond market.

Case study Group 7 : Carrefour S.A.

In the summer of 2002,with total sales of (euro) EUR53.9 billion from more than 5,200 stores, Carrefour S.A. was Europe’s largest retailer. Over the past four years, Carrefour’s growth had occurred almost entirely outside France and included several large acquisitions. In the past, Carrefour management had generally financed company growth through securities denominated in the currency of business operations. Its investment banks, Morgan Stanley and UBS-Warburg, however, had recently suggested that Carrefour consider borrowing in British pounds sterling in order to take advantage of a borrowing opportunity in that currency.With a debt-financing requirement of EUR750 million, the bond issue would be one of Carrefour’s largest. Now, in August 2002, the investment bankers expected that the 10-years Carrefour bonds would be priced at a coupon rate of 5 ¼ in euros , 5 3/8 in British pounds, 3 5/8 in Swiss francs, or 5 ½ in U.S. dollars.

In 1963, Carrefour altered the world of retailing with the introduction of the “hyper-market” concept in the small French town of Sainte-Genevieve-des-Bois, southeast of Paris. This format combined a supermarket , drugstore, discount store ,and gas station into one massive, one-stop-shopping megastore. The original store had 2,500 square meters of retail space, 12 checkouts, and 400 parking spaces. The company expanded rapidly in France and beyond, opening its first store outside France (Belgium) in 1969, and outside Europe (Brazil) in 1975. In addition to strong organic growth, Carrefour pursued selective acquisition, including notable mergers with Euromarche and Montlaur in 1991, and Promodes in 1999. Exhibit 1 provides a history of Carrefour’s store portfolio from 1992 to 2001.

Carrefour was profitable in all major operating regions. In...
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