Investment opportunity for Wal Mart: Carrefour

Introduction Wal Mart is indisputably the world leader of the retail sector The purchase of its challenger would make sense from an industrial point of view: – Their retail networks prove a geographical complementarity: No Carrefour stores in the US No WM stores in France – The merger would enable cost synergies: Cuts in head office costs Decrease in the costs of goods sold thanks to an increasing bargaining power towards suppliers Carrefour is listed on the Paris stock exchange. Therefore, the purchase of a controlling stake requires the launching of a tender offer : – Either in cash (take over bid) – Or in shares – Or in the background of a mix offer The market cap of Carrefour is around 36 bn € (ie: 50 bn $)

Cash offer: Balance sheet impacts Assumed premium: 20% – Carrefour valuation: 60 bn $ ( corresponding to an increase in the net financial debt) – Based on a 15 bn $ equity, the implied goodwill would be 45 bn $ Carrefour would be fully consolidated by WM then WM would have to consolidate Carrefour existing debt (10 bn $) The implied gearing ratio is unacceptable for the banks (166% vs a target 100% ratio)

Cash offer: EPS accretion/dilution Assuming a 100% shareholding in Carrefour (following a tender offer and a squeeze out), WM would: – Consolidate 100% of Carrefour’s net profit – Pay interest expenses based on a 5% pretax cost of debt The following table presents the sensitivity of the EPS accretion/dilution rate to the premium offered and to the pretax cost of debt In spite of a significant accretive impact (6% in the base case) a takeover bid is not possible because of the constraints of the banks

Share offer: Balance sheet impacts Assumed premium: 20% – Carrefour valuation: 60 bn $ ( corresponding to an increase in WM equity) Based on a 45,61$ price per WM share, WM would issue 1327 million new shares – Based on a 15 bn $ equity, the implied goodwill would be 45 bn $ Carrefour would be fully consolidated by WM then WM would have to consolidate Carrefour existing debt (10 bn $) The implied gearing ratio is acceptable for the banks (38% vs a target 100% ratio)

Share offer: EPS accretion/dilution Assuming a 100% shareholding in Carrefour (following a tender offer and a squeeze out), WM would c onsolidate 100% of Carrefour’s net profit The following table presents the sensitivity of the EPS accretion/dilution rate to the premium offered Whatever the premium on Carrefour, the share offer is always dilutive from an EPS point of view; because the PER of the target (Carrefour: 18) is higher than the PER of the buyer (WM: 15) therefore only a mix offer can be contemplated on Carrefour WM Net profit, group share Number of shares before acquisition4 068 EPS before tender offer3,03 Cost of debt before tax5% Tax rate35% Cost of debt after tax3,25% (additional net interest expense)0 Target net profit2 710 Wal Mart net profit after acquisition Number of WM shares Before acquisition4 068 New shares issued1 327 After acquisition5 395 EPS post acquisition2,79 EPS before acquisition3,03 Accretion/Dilution rate-8,04%

Mix offer The maximum premium which can be offered is 15% assuming a mix offer which would be 60% paid in cash