Pao de Acucar Pays Big for Globex

Yesterday, Grupo Pao de Acucar (CBD - Analyst Report) announced the acquisition of Globex in Brazil, also known as its retail brand Ponto Frio. Globex is a retail chain focused on electronics and home appliances with a strong presence in the internet market in Brazil.

Pao de Acucar paid R$1.16 billion (US$590 million) for Globex, a price that we considered excessive due to the weak performance Globex has been posting in recent quarters. It is not yet clear how the deal will be financed, but we do not see this as a problem since CBD has a strong balance sheet and a huge cash flow generation.

Considering the high valuation of Pao de Acucar and the price paid, there is little room for great optimism in the very short-term. However, if we look for the medium term, the situation is quite different.

For the medium term, we see a more positive scenario for Pao de Acucar after the acquisition as the diversification away from the food business is very welcome. Additionally, the electronics and home appliances business is expected to benefit more from falling interest rates in Brazil and the credit expansion. Last but not least, the strong presence of Globex on the Internet is highly encouraging.

Pao de Acucar has a challenging task ahead. The competition in the electronics and home appliances retail sector is huge and price paid was not cheap. For the moment we are keeping our neutral view on Pao de Acucar.

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