Carrefour SA’s board approved a plan to merge Brazilian assets with Cia. Brasileira de Distribuicao Grupo Pao de Acucar, intensifying a battle with rival French retailer Casino Guichard-Perrachon SA.
Carrefour, based near Paris, and Pao de Acucar would each own half of the joint venture, which would achieve annual savings of euro 600 million ($873 million) to euro 800 million, the retailer said today. Casino says the plan violates a 2005 agreement for it to become Pao de Acucar’s sole controlling shareholder in 2012 and today reiterated that it considers the proposal “hostile” and based on illegal negotiations.
The merger plan was proposed to Carrefour last month by Banco BTG Pactual SA investment fund Gama, setting up a power struggle with Casino, which responded by raising its stake in Pao de Acucar to about 43 per cent. About 85 per cent of the money needed for the proposal is due to be provided by BNDES, Brazil’s development bank, which said July 1 that its financing depended on a “friendly understanding” among all involved.
“For Casino, the project is unacceptable,” Christian Devismes, an analyst at CM-CIC Securities, wrote in a note to clients today. “Its management has spent the past half-dozen years patiently building up a leadership position in promising emerging countries, and Brazil is in pole position for this strategy.” Devismes has a “buy” rating on Casino.
EMERGING-MARKET GROWTH
Casino said the plan requires unanimous support from the board of Wilkes, its venture with the Diniz family that controls Pao de Acucar, Brazil’s largest retailer.
Casino and Carrefour are seeking to offset falling earnings at home by reaching into emerging markets. Casino gets a quarter of sales from Latin America, while Brazil is the second-largest contributor to Carrefour’s revenue after France. Brazil’s $1.6- trillion economy is the world’s number two among developing nations after China, according to data compiled by Bloomberg.
Pao de Acucar has gained 12 per cent since June 27, the day before the proposal was announced. The stock gained 1.2 per cent in Sao Paulo trading on July 1. Carrefour fell 1.1 per cent to euro 27.86 at 11 am today in Paris. Casino advanced 1.2 per cent to euro 66.34.
Opposition lawmakers in Brazil have criticised BNDES for financing a private transaction that may lead to market concentration, according to the lower house’s website.
Casino Chief Executive Officer Jean-Charles Naouri will meet with BNDES President Luciano Coutinho in Rio de Janeiro today to discuss the matter, a person familiar with the plan has said. They asked not to be identified because they’re not authorised to speak publicly about the talks.
Brazilian billionaire Andre Esteves, the 42-year-old chief executive officer of Banco BTG Pactual, and Abilio Diniz, 74, the chairman of Pao de Acucar, suggested the combination.
The merger also faces potential scrutiny from Brazilian antitrust authorities because the combined retailers would control more than 30 per cent of sales in a third of municipalities where they operate.
