Activist Fund Whitelight Capital Charges Carrefour with Hiding €1.5 Billion in Debt

As a result—and critically for investors—Carrefour’s ability to repay its debt would be diminished. It would take the company a full 2.2 years of gross operating surplus to do so, compared to the official 1.9 years. In Brazil, the ratio would be 2.7 as opposed to the official 1.3. “This places Carrefour among the most indebted players in the European sector,” the activist’s note assesses. Conversely, the official debt ratio had positioned the retailer better than competitors like Tesco, Ahold Delhaize, and Axfood, but the figures recalculated by Whitelight drop it behind these European names. An internal source at Carrefour, pointing to its strong BBB rating by Standard & Poor’s, counters, “Even with a ratio of 2.2, we remain among the least indebted players. And we do not understand where this extra billion euros of debt comes from.”

How did the activist calculate this €1.5 billion in hidden debt? Initially, €1.1 billion would be related to factoring (i.e., receivables sold to a financial institution) in Brazil. This practice has significantly increased there—it was only €193 million in 2019. Romanteau suggests that the recent delisting of Carrefour’s Brazilian branch could allow these operations to continue more discreetly. “Why would factoring be a problem?” wonders the internal source at Carrefour, noting that it is a well-known practice and disclosed in the accounts. An additional €360 million would be linked to deferred payments from suppliers.

Romanteau concludes his note by considering legal action against Carrefour’s board for failing to meet its governance and transparency obligations. Whitelight Capital had previously taken this approach when it targeted Orpea a few months ago. The activist also points out the lack of response from Carrefour’s management to the 200 questions he submitted: “This silence is profoundly disturbing. It suggests not only a lack of transparency but also a reluctance to engage in serious dialogue with shareholders about significant risk factors.” The internal source from Carrefour is annoyed: “He had every opportunity to attend the general meeting in May, where he was even present in the room with institutional shareholders, and to ask his questions. He did nothing. Why? That’s not very serious.”

What is Kevin Romanteau really after? The activist explains that he wants to influence the decisions of the retailer to represent the voices of suppliers, franchisees, employees, and small shareholders who he feels are mistreated by the current management. For now, his firm based in Ivry-sur-Seine hasn’t announced a capital increase at Carrefour. The 34-year-old seems to be focusing more on a media than a stock market offensive. However, the opacity around his investment capabilities, the limited experience of his fund, and his choice not to speak at the May General Assembly raise doubts about the seriousness of his approach.

The complexity of the model he has built with Jerome Coulombel (a former executive of the group and author of the book Carrefour, the Big Scam) also limits the scope of his attack. He founded an association (the CCRE) to defend Carrefour franchisees alongside his capital offensive, initially presented as linked to his financial move, which would no longer be the case. The group doesn’t seem genuinely concerned about Romanteau’s actions. Whether this new memo will change the situation remains to be seen, but it’s clearly what the activist hopes for, strategically attacking at a time when Carrefour’s stock price is historically weak.