Bloomberg News

Pao de Acucar Declines as Controller Spat Spurs Rating Cut

June 01, 2011

(Updates with closing prices.)

June 1 (Bloomberg) -- Cia. Brasileira de Distribuicao Grupo Pao de Acucar, Brazil’s biggest retailer, posted the steepest two-day drop in four months as a dispute between its controllers spurred Raymond James & Associates Inc. to cut its rating.

The stock fell 1.4 percent in Sao Paulo to 62.30 reais at the 4:15 p.m. New York time close. The two-session decline of 5.7 percent is the largest since Jan. 27.

Casino Guichard-Perrachon SA said yesterday it filed for international arbitration against the Diniz Group to make its partner meet the obligations of a November 2006 accord governing control of Pao de Acucar. The statement, which didn’t elaborate, came after Casino learned that Pao de Acucar Chairman Abilio Diniz held talks with Carrefour SA on a possible deal, according to two people with knowledge of the talks, who asked not to be identified because the discussions are private.

“As with any long-term relationship, when one party wants to materially change the arrangement, it can become an awkward situation and bring instability,” Daniela Bretthauer, an analyst at Raymond James in Sao Paulo, wrote in a note to clients today. She cut Pao de Acucar to “outperform” from “strong buy.”

Pao de Acucar should disclose any talks for a transaction with Carrefour, said Wagner Salaverry, who oversees 6.3 billion reais ($4 billion) including Pao de Acucar shares as partner at Geracao Futuro Corretora de Valores SA in Porto Alegre, Brazil.

“As it is now, it looks like a big shareholder, with a controlling stake, knows something about the company that nobody else does,” Salaverry said in a telephone interview. “If Casino filed a request for arbitration, it’s because they probably know that something’s going on.”

Diniz Statements

Pao de Acucar said yesterday it doesn’t have any knowledge of talks with Carrefour. Diniz said in a separate statement that he didn’t break the shareholders’ agreement.

Today, Diniz asked the company’s management to maintain “serenity” during “difficult” days. “I’m doing everything within my reach to protect you and the company from any attack,” he said in a letter sent to Pao de Acucar’s management and e-mailed to Bloomberg by the company.

Carrefour hired Lazard Ltd. to study a merger between its Brazilian unit and Pao de Acucar, Journal du Dimanche reported last month, without saying where it got the information. The Diniz family could take a stake in the French retailer as part of the operation, according to the newspaper.

Joint Control

Casino, which says it owns 33.7 percent of Pao de Acucar, has had joint control with the Diniz family since July 2005. Starting next year, Casino will have the right to appoint the chairman of Wilkes, the holding company for Pao de Acucar, and gain control of the retailer, according to Casino’s 2010 registration document.

The Diniz family agreed in 2005 not to sell its shares in Wilkes until 2014. All major management decisions must be unanimously agreed upon, and Casino and Diniz each have the right of first refusal should the other wish to sell their shares after the lockup period, according to the pact.

Disagreements among the controlling shareholders are “bad news” for the company, Ricardo Boiati and Alan Cardoso, analysts at Banco Bradesco SA, wrote in a note to clients yesterday.

“This distress raises uncertainties regarding the company’s outlook and could also impact operations if management is somehow affected and gets distracted,” they said.

--Editors: Richard Richtmyer, Glenn J. Kalinoski

To contact the reporters on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net; Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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