Carrefour’s board has signed off on a plan to merge its Brazilian assets with the local grocery market leader Grupo Pão de Açúcar (GPA), in which its French rival Casino Group has a minority stake.

Carrefour’s board has signed off on a plan to merge its Brazilian assets with the local grocery market leader Grupo Pão de Açúcar (GPA), in which its French rival Casino Group has a minority stake.

Such a deal would increase GPA’s market leadership with 2011 pro-forma sales for the combined entity estimated at more than $42bn (£27bn), compared with the would-be second-placed Walmart at just over $19bn (£12bn) forecast sales. The move would see Carrefour’s assets merged with those of GPA in an equally owned joint venture that would control more than 13% of Brazil’s modern grocery trade.

However, Casino - which co-controls GPA with its Brazilian partner the Diniz Group, headed by billionaire Abilio Diniz - has described the move as “illegal” and of “an obvious hostile nature”. Casino has been scrambling to tighten its grip on GPA in the last couple of weeks, increasing its stake to about 43.1%, up from 33.7% in June.

Carrefour, despite citing projected annual synergies of $1bn (£619m) as the rationale for the deal, will be looking to capture a larger share of growth in this increasingly attractive emerging retail market, while fending off the growing threat from Walmart.

Already the eighth-largest economy in the world, Brazil bounced back from the downturn with growth of 7.5% in 2010. Continued growth of more than 4% per annum projected for the coming years is expected to push the economy to fifth position in the world ranking by 2015. The country’s rising profile has been boosted by attracting the 2014 FIFA World Cup and the 2016 Olympics, events that will bring much-needed investment in infrastructure projects.

The deal, if successful, would prove a massive blow to Walmart, which has long been eyeing market leadership in Brazil.

The retailer has pledged to invest about $704m (£436m) to open 80 stores in the country this year. Walmart International chief executive Doug McMillon said: “Brazil is a strategic market for Walmart. We see an excellent growth potential here.”

The US giant has embarked upon a programme to introduce EDLP to its entire Brazilian Supercenter operation this year, an initiative that will be undermined by the proposed merger. Walmart’s distant second position in the market would raise concerns about the feasibility of reaching agreements with local suppliers under better conditions than the market leaders.

Matthew Stych, research director, Planet Retail.

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