Investment opportunity for Wal Mart:

1. Investment opportunity for Wal Mart: Carrefour

2. Introduction • Wal Mart is indisputably the world leader of the retail sector • The purchase of its challenger would make sense from an industrial point of view: • Their retail networks prove a geographical complementarity: • No Carrefour stores in the US • No WM stores in France • The merger would enable cost synergies: • Cuts in head office costs • Decrease in the costs of goods sold thanks to an increasing bargaining power towards suppliers • Carrefour is listed on the Paris stock exchange. Therefore, the purchase of a controlling stake requires the launching of a tender offer : • Either in cash (take over bid) • Or in shares • Or in the background of a mix offer • The market cap of Carrefour is around 36 bn € (ie: 50 bn $)

3. Cash offer: Balance sheet impacts • Assumed premium: 20% • Carrefour valuation: 60 bn $ ( corresponding to an increase in the net financial debt) • Based on a 15 bn $ equity, the implied goodwill would be 45 bn $ • Carrefour would be fully consolidated by WM then WM would have to consolidate Carrefour existing debt (10 bn $) • The implied gearing ratio is unacceptable for the banks (166% vs a target 100% ratio)

4. Cash offer: EPS accretion/dilution • Assuming a 100% shareholding in Carrefour (following a tender offer and a squeeze out), WM would: • Consolidate 100% of Carrefour’s net profit • Pay interest expenses based on a 5% pretax cost of debt • The following table presents the sensitivity of the EPS accretion/dilution rate to the premium offered and to the pretax cost of debt • In spite of a significant accretive impact (6% in the base case) a takeover bid is not possible because of the constraints of the banks

5. Share offer: Balance sheet impacts • Assumed premium: 20% • Carrefour valuation: 60 bn $ ( corresponding to an increase in WM equity) • Based on a 45,61$ price per WM share, WM would issue 1327 million new shares • Based on a 15 bn $ equity, the implied goodwill would be 45 bn $ • Carrefour would be fully consolidated by WM then WM would have to consolidate Carrefour existing debt (10 bn $) • The implied gearing ratio is acceptable for the banks (38% vs a target 100% ratio)

6. Share offer: EPS accretion/dilution • Assuming a 100% shareholding in Carrefour (following a tender offer and a squeeze out), WM would consolidate 100% of Carrefour’s net profit • The following table presents the sensitivity of the EPS accretion/dilution rate to the premium offered • Whatever the premium on Carrefour, the share offer is always dilutive from an EPS point of view; because the PER of the target (Carrefour: 18) is higher than the PER of the buyer (WM: 15) therefore only a mix offer can be contemplated on Carrefour WM Net profit, group share 12 343 Number of shares before acquisition 4 068 EPS before tender offer 3,03 Cost of debt before tax 5% Tax rate 35% Cost of debt after tax 3,25% (additional net interest expense) 0 Target net profit 2 710 Wal Mart net profit after acquisition 15 053 Number of WM shares Before acquisition 4 068 New shares issued 1 327 After acquisition 5 395 EPS post acquisition 2,79 EPS before acquisition 3,03 Accretion/Dilution rate -8,04%

7. Mix offer • The maximum premium which can be offered is 15% assuming a mix offer which would be 60% paid in cash