Casino’s board of directors today (12 July) hit out at the “flawed” plan to merge Brazilian retailer CBD with Carrefour‘s local operations.
The Casino board, including CBD chairman and vocal supporter of the merger Abilio Diniz, met to discuss the proposal.
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Casino co-owns CBD with Diniz and the French retailer has consistently attacked the plan, which was put forward last month by Gama, a fund managed by Brazilian investment bank BTG Pactual.
At the meeting, Diniz reiterated his support for the deal but chose not to participate in a vote on the transaction. However, Casino said the rest of the board concluded that the plan was “contrary to the interests” of CBD, also known by its trading name of Grupo Pao de Acucar, or GPA.
The statement came amid reports that the Brazilian government could withdraw support for the merger. Yesterday, Reuters reported that, after the strong opposition from Casino, a Brazilian government official had said the country’s Cabinet had withdrawn its support for the Brazilian National Development Bank (BNDES) to part-fund the deal. Last week, the BNDES reportedly said it would only provide finance for the transaction if Casino supported it.
Casino said the deal was based on a “flawed strategic vision” for GPA. A merger with Carrefour’s Brazilian operations would double the combined company’s sales from hypermarkets, which Casino claimed was a “declining format”.
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By GlobalDataCasino also criticised the fact that, under the plan, GPA would end up with 50% of the combined business in Brazil and an 11.7% stake of Carrefour.
“A minority shareholding in Carrefour does not provide any adequate internationalization of GPA, which should control any such expansion,” the retailer said. “The international expansion of GPA should focus on high-growth countries, whereas mature European markets represent nearly two-thirds of all Carrefour sales.”
It added: “Taking a position in Carrefour is a risky investment, taking into account the market’s doubts regarding its strategy given its overexposure to mature markets with weak growth prospects and to the lowest-growth store formats.”
Casino also claimed that Gama’s estimates of the synergies that would emerge from the merger were “grossly overestimated”. It also said the “execution risks” from the deal are “high”.
The French retailer, which claims that a 2005 deal with Diniz means it can become the sole controlling shareholder in GPA next year, also repeated its belief that the planned merger was “hostile” and “illegal”.
Casino has made two applications for arbitration with Diniz at the International Chamber of Commerce. The company said Diniz broke a 2006 agreement that meant it had to agree to – and be involved in – any talks over the future of GPA. Casino also argues that the plan can only go ahead with the approval of the board of Wilkes, the holding company through which the retailer and Diniz own Brazil’s largest retailer.
The retailer has also accused Carrefour of holding “hostile” intentions, pointing to the “months” of “secret talks” to “capture control” of GPA.
Carrefour has insisted it had not acted in a hostile manner and also questioned the claims Casino has made over its agreements with Diniz.
For his part, Diniz has said he is “convinced” his talks with Carrefour had “taken place in a legitimate manner, in accordance with Brazilian law, our shareholder accords and the principles of trade ethics”.
The Wilkes board are set to meet to discuss the plan on 2 August. The Casino directors said today that they had instructed Jean-Charles Naouri, the retailer’s chairman and CEO, to “present as soon as possible the position of Casino to the Wilkes board of directors, and, more generally, to defend Casino’s position, by all appropriate measures, in accordance with existing agreements and Brazilian regulations”.
