Bloomberg News

Casino Raises Pao de Acucar Stake, Boosts Defense in Brazil

June 30, 2011

(Updates with chairman’s comments in seventh paragraph.)

June 30 (Bloomberg) -- Casino Guichard-Perrachon SA stepped up a battle with French rival Carrefour SA for control of its Brazilian venture by buying more shares in the business.

France’s second-biggest grocer bought 6.2 percent of Cia. Brasileira de Distribuicao Grupo Pao de Acucar, bringing its overall stake to 43.1 percent of the retailer, according to a letter received by Pao de Acucar and sent to Brazil’s securities regulator yesterday. Casino, of Saint-Etienne, France, today announced a plan to consolidate businesses in Latin America.

Casino is preparing for a fight after Pao de Acucar Chairman Abilio Diniz and shareholder Banco BTG Pactual SA approached Carrefour this week to propose combining the companies’ operations in Brazil to create the country’s largest retailer. Casino said the proposal was a “long-standing illegal planned financial transaction.”

“This is a battle,” said Laurence Hofmann, an analyst at Oddo in Paris who has a “buy” recommendation on Casino and “neutral” on Carrefour. “A bigger stake reinforces Casino’s position in the negotiations.”

Pao de Acucar rose 1.15 reais, or 1.6 percent, to 72.15 reais at 5:08 p.m. in Sao Paulo. The stock has advanced 11 percent since June 27, the day before the Carrefour proposal was made public. Casino climbed 40 cents to 65 euros in Paris, while Carrefour advanced 21 cents to 28.32 euros.

Share Gains

The share gains present risks amid “high valuation,” JPMorgan Chase & Co. analysts including Andrea Teixeira wrote in an e-mail to clients today.

Diniz said today that he hasn’t bought or sold the company’s stock after June 28, when Pao de Acucar asked its controlling shareholders, managers and board members to stop trading the shares, according to an e-mailed statement.

Controlling shareholders, managers and board members can trade a company’s shares after the announcement of a material fact as long as they don’t have privileged information, said Luciana Dias, a director at Brazil’s securities regulator CVM.

“If shareholders or company managers are trading on information that is public, there is no irregularity,” Dias said in a telephone interview from Rio de Janeiro today.

Board Meeting

The proposal threatens Casino’s ability to operate in Brazil because it puts Carrefour’s assets there in play, which may entice Wal-Mart Stores Inc. to attempt to merge its Brazilian operations with Carrefour’s, Christopher Hogbin, a Sanford C. Bernstein analyst in London, wrote in a note today.

Casino, which gets a quarter of sales from Latin America, said the interests of its shareholders “seem threatened” by the proposal to Carrefour, he said. Brazil is among the emerging countries that are helping offset falling earnings at home.

“The purchase of more non-voting shares could make investors question whether Casino is entirely comfortable with its current control agreements,” said Amy Crofton, an analyst at Barclays Capital in London. “Pao de Acucar’s share price has risen markedly since Casino increased its stake two weeks ago -- it would seem an odd time to buy more otherwise.”

Carrefour has said its board will review the proposed transaction. The company’s directors will meet today or tomorrow to discuss it, French daily Les Echos reported.

Helene Saint-Raymond, a spokeswoman for Carrefour, said the company doesn’t comment on the scheduling of board meetings.

Casino Advantage

“Casino has the advantage over the merger proposal, and they’ll oppose Carrefour taking control in the new company that would be created,” Jean-Marie L’Home, an analyst at Aurel in Paris, wrote in a note to investors today. Casino may gain a controlling stake in Pao de Acucar next year as part of its original shareholder agreement for the venture.

Casino said in a statement today that its Exito unit in Colombia plans to raise as much as $1.4 billion by selling new shares to finance expansion. Exito will buy Casino’s majority stakes in Uruguayan retailers Disco and Devoto for $746 million. The move isn’t related to the developments in Brazil, the company said.

Casino said it plans to maintain control over Exito by buying enough shares in the capital increase to maintain its stake at 54.8 percent. The transaction is expected to boost Exito’s earnings per share from the first year and not affect Casino’s.

Disco, Devoto

“The combination of Exito with Disco and Devoto will strengthen the integration of two companies operating in countries with strong linguistic and cultural similarities,” the French company said in the statement. “It will allow the generation of synergies, which have not been possible so long as the companies were operated separately.”

Casino said the merged companies will expand in Spanish- speaking Latin America.

Disco and Devoto operate 53 stores in Uruguay, and have the biggest market share in the “modern food distribution market” in that country, according to Casino. Exito will use the funds raised to renovate stores, add new formats, expand in medium- sized cities and fund acquisitions in the region.

A merger of Sao Paolo-based Pao de Acucar with Carrefour’s local unit may open international markets for products exported by Brazil, the country’s trade and development minister Fernando Pimentel said yesterday in Brasilia. The company would have 25 percent to 27 percent of the domestic food market, he said.

-- With assistance from Francisco Marcelino and Alexander Cuadros in Sao Paulo. Editors: Kevin Orland, James Callan.

Exito CB <Equity> CN CA FP <Equity> CN CO FP <Equity> CN PCAR4 BZ <Equity> CN

To contact the reporters on this story: Thomas Mulier at tmulier@bloomberg.net; Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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