Carrefour is the world's second company in retail distribution and one of the foremost French corporate groups. In recent years, the company has experienced varied fortune due to mistakes in its pricing policy and positioning, but the company remains effective. Now it seems that the group is threatened ... by its shareholders. A story that says a great deal about the opposition between financial and industrial rationales.

The story begins two years ago when Bernard Arnault (LVMH chairman and main shareholder, richest man in France) and the American Capital Colony, an investment fund specializing in real estate, bought into Carrefour's capital and became significant shareholders of that company through the intermediary of a joint Luxemburg subsidiary, Blue Capital. Their objective, apparently, was to make a quick profit by pushing the company to sell part of its real estate assets.

This strategy was obviously compromised by the real estate crash: hard to find buyers at an interesting price under the present circumstances and for the foreseeable future. Meanwhile, pending better days, the interest on the debt contracted to make that purchase significantly exceeds the dividends paid out by Carrefour, in spite of the ousting of its CEO, replaced by a boss with a suppler spine.

Dismemberment

So a new plan formed in the fertile minds of the "investors": sell the group's Asian and South American subsidiaries and concentrate on Europe. This idea was barely out before it infuriated the Chinese authorities, who are on the lookout to maintain a balance of power in retailing and for whom Carrefour serves as a counterbalance to the invasive presence of Wal-Mart. In the end, the sale of the Chinese subsidiary was abandoned. But a possible transfer of the South American subsidiaries - undoubtedly to Wal-Mart - remains on the agenda for the next board meeting.

The interest in such a sale is purely financial: more or less, Arnault and Capital Colony bought their shares for 50 Euros and today they're worth 30. The projected sales would allow distribution of an exceptional dividend of about 10 Euros; the wherewithal for Arnaud and company to begin to break even, as long as the operation does not reduce the company's share price - which is far from being a given.

In fact, Carrefour is a group that stands today on two pillars: stable European (and especially French) markets that, however, are mature markets with limited sales-growth potential; and the much more dynamic emerging markets, with growth rates that may reach 30 percent per year. While the European markets have assured the foundation for the group's turnover and profits, the emerging markets constitute its main source of growth. Without them, the group's profit prospects are very limited. Under these conditions, it is not even certain, should the sale proceed, whether it would ultimately be profitable, to the extent it led to a drop in the share price.

In summary, what is happening today to Carrefour vividly illustrates the contradictions that may exist between short-term financial interests and long-term strategies. Colony and Arnault behave like predators, buying to resell at a profit, dismembering their prey in the interim and depriving it of prospects for development by prospectively cashing in those prospects financially. This is obviously not in the interest of the ongoing concern.

Contradictions

But in what respect do these internecine wars between capitalists interfere with the general interest? There's a certain logic to Carrefour's international development. It's in the interest of the receiving country, which profits from this savoir-faire in terms of the quality of the company and training of the work force. And it's in the interest of the originating country, in this instance, France, which promotes the savoir-faire it has acquired in Europe within emerging markets. We may also consider that the foreign development of big French retail groups favors the export of some products that are sold by them.

This anecdote vividly illustrates the contretemps to which the transfer of company property into the hands of entities moved by purely short-term financial rationales leads. For years, pension funds have claimed that they offer perspective, since, managing their clients' money over the long term, they are trustworthy investors, allowing companies the time to put their investments to work. Today, we know that that is a lie, with pension funds' average holding period for shares lasting no more than six months on average. Finance is carried by the concern for maximizing the contraction in the time required to realize value, whatever the price for the enterprises involved and the people who work there.

A theoretical remark in conclusion: if standard financial theory were correct, investing in a company to sell it off in pieces would be perfectly justified because the firm is nothing but an aggregation of assets that don't have more value together than broken up. This year's Nobel laureates, among others, have shown that that theory is mistaken and that a company is a bit more than that.

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Translation: Truthout French language editor Leslie Thatcher.