The Brenninkmeijer family, which controls the fashion retailer C&A, based in the Netherlands, considers selling its position in the Brazilian operation as part of a plan to concentrate business in Europe, Value.
After disbanding operations in China and Mexico this year, the Brenninkmeijers, with 65% of the fashion retailer in the country, told foreign private equity funds that they would be open to review a proposal for the asset in Brazil, listed on the stock exchange since the end of 2019.
In the financial market, the sale of C&A operations in Brazil would not be a surprise. Although until the beginning of October this year there was no formal mandate for the sale, the company has been prospecting the market through contacts made by the headquarters, testing the interest of funds and strategic groups, says an investment bank source.
A second source says that the company’s loss of market value after the covid-19 pandemic ended up discouraging a partial sale in blocks of shares on the stock exchange or the sale of control this year. But there is already a recovery in market value, and the interest in trading with funds remains.
“In 2019, before the IPO [oferta pública inicial de ações] there was already an interest in a direct sale negotiation with some foreign investor, but that did not advance at the time because of price and they opted for the public offering. But they have made clear their willingness to listen to any proposals. Their intention is to stay in Europe and concentrate investments in some more profitable European countries, such as Germany ”, said the source.
The company has been trying to find solutions for the business in the country since 2014, when it started to consider the idea of divesting the local arm, Value. Private equity funds and competing companies have even analyzed the asset in recent years, according to people familiar with the matter. “The deal was small after the IPO,” notes another source. C&A is the fourth largest fashion retailer in the country, in number of stores, and the third in revenue, according to a report by Nord Research.
In February this year the company sold the operation in Mexico to the local fashion chain Axo. A few months later, in August, he also divested business in China, for the Beijing Zhongke Tongrong fund. When he announced this operation, Allan Leighton, chairman of C&A AG, occupying the highest position in the network, mentioned the Brazilian operation in a statement. “Like C&A in Brazil and Mexico, we have always seen China as a key growth market for C&A. But we understand that the local experience with a strong network was essential to unlock the full potential of C&A [na China]”.
C&A operates in 18 countries, the majority in Europe. In emerging markets, it controlled 100% of the units in Mexico and China, and now there is only a majority stake in Brazil.
With the IPO in the country, family businesses (Cofra Investments and Incas SA) reduced their position from 100% in the retailer to 65% and pocketed almost R $ 814 million through the offering of secondary shares (for the partners’ pockets). The operation left the floor of the indicative share price range (R $ 16.50) and ended up being highlighted, in part, because of the allocation of funds. Ninety percent of the primary offer (resources for the company’s cash) went to pay loans from companies in the C&A group and only 10% (about R $ 80 million) for the expansion plan, which ended up generating questions from managers and investors about the real interest of current controllers in growing in the Brazilian market.
The retailer has 288 stores in the country, with 550 thousand square meters of sales area and net revenue this year, until June, of R $ 1.2 billion. The market leader, Renner, has 60% more sales (R $ 1.9 billion, excluding the other brands of the group), with a third more stores (387) and almost 700 thousand square meters of area.
Since August, the share price at B3 has been showing recovery. And an appreciation, with the payment of a premium on the price, would open the way for the company to move forward with the country’s exit plan, despite the scenario of uncertainties for retail in 2021. The paper reached just over R $ 5 in March, beginning of the pandemic, and on Friday it closed at R $ 12.80. A source noted that any new retailer owners in the country would be subject to the brand’s licensing agreement. And they would have to pay royalties to the headquarters (in case of making a profit) – an expense that other local networks do not have.
The change in strategy in emerging markets takes place on the eve of the arrival of a new global command at C&A. Edward Brenninkmeijer, a member of the founders’ family, will step down as CEO later this year, the network reported in August. It will be succeeded in January by executive Giny Boer (ex-Ikea). According to the Financial Times, Boer will have support to play a plan to close stores with loss, focus on the online and try to turn the results after the pandemic. Like other fashion chains, C&A was affected by the crisis, and decided to cut costs to reduce losses.
Sought, C&A says that “does not comment on rumors or market speculation”.