Chile Retailer D&S Jumps Most Ever on Wal-Mart Offer

By James Attwood

Dec. 22 (Bloomberg) -- Distribucion y Servicio D&S SA, Chile’s biggest grocer, rose the most since it began trading in 1996 after Wal-Mart Stores Inc. made a $2.66 billion offer for the U.S. retailer’s biggest acquisition in Latin America.

D&S jumped 28 percent to 249.2 pesos in Santiago trading, the steepest gain since December 1996, according to Bloomberg data. The American depositary receipts surged 26 percent to $23.85 in New York.

Wal-Mart, the world’s largest retailer, will pay 40.8 cents (259 pesos) per D&S common share, 33 percent higher than the last traded price of 195 pesos on Dec. 18. Wal-Mart’s tender offer was announced in a statement after the market close on Dec. 19.

“They’re paying a very good premium and obviously that includes a premium for control,” said Juan Andres Camus, chairman of Celfin Capital SA, which manages about $4 billion in assets. “The current controllers are selling for a reason.”

Chilean antitrust officials rejected a merger agreement between D&S and department-store owner SACI Falabella SA in January. In July, El Mercurio reported Wal-Mart had engaged in “informal” talks with D&S during the Falabella merger discussions, citing a document from the securities regulator.

Chile’s economy is “strong and growing” among South American countries, Mike Duke, Wal-Mart’s international chief, said in an Oct. 28 statement. Starting Feb. 1, he will succeed H. Lee Scott, who’s retiring as chief executive officer.

Chile Outlook

Growth probably will slow to between 2 percent and 3 percent in 2009 from an estimated 4 percent to 4.5 percent this year as a global economic slowdown curbs demand for Chilean exports, the central bank said on Nov. 14.

D&S has an estimated 33 percent of the market and operates 173 stores under the names Lider, Ekono and A Cuenta, Raymond James & Associates said.

“This offer is an excellent opportunity to take profits in the stock,” Banco Santander SA analysts including Antonio Cruz wrote in a note to clients today.

Trading in D&S was halted Dec. 19 as securities regulators sought a response by the company’s controlling shareholders about possible talks with third parties. The stock gained 7.8 percent the previous day amid takeover speculation.

Regulators are investigating possible cases of insider trading in the stock, chief regulator Guillermo Larrain told reporters, according to TVN television station. Larrain wasn’t available for comment, an assistant said by phone.

Capital Increase

The Ibanez family, D&S’s current controlling shareholder, will get four seats on a nine-member board chaired by Felipe Ibanez if the tender offer is successful, La Segunda reported.

The agreement between Wal-Mart and Ibanez also includes a capital increase of $300 million to $500 million to finance expansion in Chile and neighboring Peru, the newspaper said, citing people at the company it didn’t name.

Wal-Mart spokesman Kevin Gardner declined to comment on proposed board members or financing plans in an e-mailed response to Bloomberg.

To contact the reporter on this story: James Attwood in Santiago at jattwood3@bloomberg.net