CARREFOUR S.A. Harvard Case Solution & Analysis

CARREFOUR S.A. Case Solution

  1. Discuss the current situation of Carrefour. Why should Carrefour consider borrowing in a currency other than Euros?

Carrefour Company is highly focused in fulfilling the demands of its customers by keeping the mission to be the benchmark in the retailing industry. The company is committed to enlarge its capacity in providing more goods to the people with the help of trade principles as well as sustainable development.

carrefour s.a. case solution

carrefour s.a. case solution

The company started its operations in 1963 in the small French town by introducing the concept of hypermarket, which provided one stop solution in providing the drugstore, gas station, discount store and all the relevant items so that the customers can get all what they want from one shop.

The company has successfully maintained its growth for a longer time period and became the giant hypermarket by expanding the market not only locally but globally as well. It can be seen that the expected expansion for the company is 5% increase in the turnover as well as around 10% to 15% increase in the net profit.

This one stop shopping megastore concept allowed rapid expansion not only throughout the France but also beyond it. It can be seen that in the year 2002 with 5,200 stores all over the world, the company’s annual turnover is about Euro 53.9 billion. The company was in a need of funding of about Euro 750 million through the 10 years debt financing.

It was the company’s practice to get the funds in the same currency in which they operated in the regular business therefore,the company is faced with the evaluation of the alternatives solutions in different currencies of the world. Thus, the recommended strategy could be the one which can ensure the cheapest cost for the company in using the debt financing of Euro 750million. Any foreign currency risk exposure for the company could be hedged with the help of the forward contracts on that currency.

For each of the borrowing alternatives including the British pounds, Swiss francs, and U.S. dollars, the par values of the company are calculated as follows:

     
 EuroUKSFUS
750  750.000        471 1,090.12    735.29
 

The coupon rates for the respective alternatives present with the company are summarized as below:

COUPON RATES
EURO5.250%
UK5.375%
SF3.625%
US5.500%

  Is the Swiss-franc issue, at 3⅝%, a “no-brainer”?

 By looking at the coupon rate for the Swiss francs of 3.625%, it cannot be concluded that the currency could prove to the viable alternative for the Carre four S. A. Complete calculations would be required in determining the forward exchange rate of the Swiss francs with respect to the Euros,then there would be yearly payment of the debt financing to be checked. After that those yearly payments are added to come up with the overall cost for this alternative. However by looking at the Exhibit 4, it seems that this alternative would be highly costly as compared with all the other alternatives present with the company.

Moreover, by looking at the graph showing the 10- year government-benchmark bond yields, it can be seen that the Swiss francs currency yield in the minimum of the other alternative. If the company chooses this alternative, then it would be highly costly moreover the yield it could earn from this would also be the minimum of the others. Moreover, by checking the graph of the trends in the foreign currency spot rates, it can be seen that the Swiss francs has the highest spot rate among the other alternative as we move from December 1998 to June 2002.

Therefore, by looking the Swiss franc currency from every angle, it can be concluded that this currency is not a “no-brainer”..............

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