Brazilian tycoon Abilio Diniz today abandoned his plans to merge retailer Grupo Pao de Acucar with Carrefour’s local arm, putting a possible end to a deal that generated controversy on both sides of the Atlantic.
French retailer Casino, Diniz’s partner in Pao de Acucar, had voted against the deal earlier in the day, the first of a series of barriers thrown up against the deal until finally the proposal fell apart.
After Brazilian state development bank BNDES backed out of supporting the deal, both Diniz, through a spokesman, and BTG Pactual, in an emailed statement, suspended the offer.
Securities firm BTG Pactual controls Gama, the investment vehicle that was part of the complex and controversial proposal.
Diniz’s abandonment of the plan marked a turnaround from earlier in the day when, in a statement, he said he maintained support for the plan with Carrefour. Casino’s board had said he deal was risky and ill-conceived for the Brazilian market.
The two French companies, Casino and Carrefour, want Brazil’s Pao de Acucar to offset slower growth at home. Brazil, Latin America’s biggest economy, is expected to grow 4 per cent this year, and the country’s emerging middle class likes to shop.
Although Casino seems to have succeeded in blocking the plan for now, it faces an uncertain relationship with Diniz, who is chairman and a key stakeholder of GPA, and possibly local management as well.
“There is not really a winner here, as Casino is stuck with a partner whose interests are obviously elsewhere,” said Natalie Berg, co-global research director at Planet Retail.
Carrefour shares fell 2.7 per cent to a two-year low as its prospects of strengthening its position in a fast-growing emerging market seemed to fade.
Shares in Casino, GPA’s controlling shareholder, closed slightly higher. Shares of Grupo Pao de Acucar closed down 1.96 per cent in Sao Paulo. The deal’s suspension is a particular blow to Carrefour, which is battling to recover from three profit warnings in less than a year.
Second-quarter sales figures from the world’s second-biggest retailer on Wednesday are expected to show a deteriorating performance in France, its largest market, after a tactical mistake that saw it raise prices before its rivals.
“Management clearly expected that the (Brazil) deal would go through and that the synergies would form a core part of its ability to significantly improve its Brazilian hypermarket profitability,” said RBS analyst Justin Scarborough.
WHERE NOW?
Casino, which has described the plan as “hostile and illegal,” said on Tuesday its board unanimously rejected it following a meeting in Paris with Diniz.
It also reaffirmed its commitment to GPA and Brazil, signaling it has no plans to sell out and raising the prospect of a lengthy dispute with Diniz.
Analysts said Diniz, the 74-year-old son of GPA’s founder, might try to win Casino over by offering more favourable terms, though it is unclear whether Carrefour would accept this. “A restructuring of the proposal would likely be less favourable for Carrefour,” Espirito Santo analysts said.
Some analysts have also suggested Diniz’s main goal might be to extract better terms from Casino, which has an option to strengthen its control over GPA from June 2012.
“It’s entirely possible that’s his ulterior motive,” said Bernstein’s Chris Hogbin. “But I suspect he also sees there’s lots of value to be created by this.”
Hogbin said all was not necessarily lost for Carrefour as Wal-Mart could be interested in buying its Brazilian assets if it wanted to sell out.
Carrefour, which earlier this month spun off discount chain Dia to focus on turning round its main hypermarket business, has previously said it has no plans to exit Brazil.
Analysts expect Carrefour to post a 1.9 per cent rise in second-quarter sales to ¤22.48 billion ($32 billion), helped by the timing of Easter and rising fuel prices, according to the average forecast of 14 analysts polled by Reuters.
But sales at French hypermarkets, excluding fuel and calendar effects, are tipped to fall more than 3 per cent.
Carrefour said in its last profit warning on June 16, when it forecast first-half earnings in France would fall around 35 per cent, that it was charging new French boss Noel Prioux to come up with a recovery plan.
