Chilean Cencosud to buy majority stake in U.S. TFM grocery chain, shares drop

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Chilean retail group Cencosud struck a $676 million deal to buy a 67% stake in The Fresh Market (TFM) supermarket chain, its first foray into the U.S. market, although its shares fell nearly 4% on dilution and valuation concerns.

In a filing to the Chilean securities regulator late on Tuesday, Cencosud said it had reached an agreement to buy the U.S. grocery chain, which operates 160 stores and whose controlling fund is managed by affiliates of Apollo Global Management.

Itau BBA analysts noted the purchase could dilute Cencosud shareholders. A research note from BTG Pactual noted that Cencosud had payed “a reasonable price” for the TFM stake, but questioned the logic behind throwing cash at a U.S expansion, warning Cencosud’s appeal as “a Latam (pure play) retailer” could be hampered.

TFM, which reported revenues of $1.93 billion in 2021 and an adjusted EBITDA of $196 million, is a premium specialty supermarket, competing with likes of Whole Foods across 22 states, with a strong presence in Florida.

The transaction is subject to the fulfillment of certain conditions, including authorization by U.S. authorities.

Cencosud added it could eventually take over the entirety of TFM.

“After a certain period of time, Cencosud Internacional can reach a 100% stake,” depending on “TFM’s cash, debt, working capital and certain other variables,” the firm’s filing read.

The deal follows Cencosud´s $100 million acquisition of Brazilian supermarket chain GIGA last week.

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