Carrefour S.A

12 Pages Posted: 21 Oct 2008

See all articles by Michael J. Schill

Michael J. Schill

University of Virginia - Darden School of Business

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Abstract

In August 2002, the French retail giant Carrefour S.A. was considering alternative currencies for raising (euro) EUR750 million in the Eurobond market. Carrefour's investment bankers believed that the bonds can be issued at 5.25% in euros, 5.375% in British pounds, 3.625% in Swiss francs, and 5.5% in U.S. dollars. Despite the high nominal coupon rate and the lack of any material business activity in the United Kingdom, the British-pound issue appears to provide the lowest cost of funds. This case was designed to introduce topics in international finance such as interest-rate parity, currency risk management, and the Eurobond market. Students are tasked with exploring why forward-currency exchange rates vary from spot rates and proposing a Eurobond financing strategy for Carrefour.

Excerpt

UVA-F-1470

Rev. Jan. 28, 2009

CARREFOUR S.A.

With total sales of (euros) EUR53.9 billion from more than 5,200 stores, Carrefour S.A. was Europe's largest retailer in the summer of 2002. Over the previous four years, Carrefour's growth, including several large acquisitions, had occurred almost entirely outside France. The company maintained retail operations in 26 countries across the globe.

In funding its ongoing expansion, Carrefour faced an immediate debt-financing requirement of . Historically, Carrefour management maintained a practice of funding capital needs in the same currency as the respective business operations. Its investment banks, Morgan Stanley and UBS-Warburg, however, had recently suggested that Carrefour consider borrowing in British pounds sterling through the eurobond market in order to take advantage of a temporary borrowing opportunity in that currency. As a basis of comparison, the investment bankers provided alternative rates across various currencies for a proposed 10-year Carrefour bond. The bankers estimated that the bond could be priced at par at a coupon rate of 5¼ in euros, 5⅜ in British pounds, 3⅝ in Swiss francs, or 5½ in U.S. dollars.

Carrefour

. . .

Keywords: debt policy, interest rates, international finance

Suggested Citation

Schill, Michael J., Carrefour S.A. Darden Case No. UVA-F-1470, Available at SSRN: https://ssrn.com/abstract=1279928 or http://dx.doi.org/10.2139/ssrn.1279928

Michael J. Schill (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4071 (Phone)
434-243-7676 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/schill.htm

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