Bloomberg News

Carrefour-Pao de Acucar Deal Loses Brazil Government Backing

July 13, 2011

(Updates share performance in fifth paragraph, report of planned BTG talks with Casino in 14th.)

July 13 (Bloomberg) -- A proposal backed by Carrefour SA to merge its Brazilian assets with Cia. Brasileira de Distribuicao Grupo Pao de Acucar fell through as the country’s government withdrew financial support for the deal, which was opposed by Pao de Acucar’s largest shareholder.

Brazil’s national development bank, known as BNDES, rejected a plan to help fund the transaction with a 2 billion- euro ($2.8 billion) stake purchase in the proposed new company, saying agreement from all parties was a condition for its participation, according to an e-mailed statement yesterday.

Casino Guichard-Perrachon SA, the Saint Etienne, France- based company that shares control of Pao de Acucar with Brazil’s Diniz family and competes with Carrefour, released a statement after a board meeting in Paris yesterday saying the proposed merger “grossly” overestimated savings, had high execution risks and would reduce Pao de Acucar’s earnings per share.

“Reason prevailed,” Carlos Lessa, who served as BNDES president from 2003 to 2004, said in a phone interview from Rio de Janeiro yesterday. “It doesn’t seem smart to create a company with a French partner like Carrefour, which is having thousands of problems.”

Pao de Acucar rose 0.9 percent to 65.58 reais at 11:24 a.m. New York time. Brazil’s benchmark Bovespa index gained 1.8 percent. Carrefour rose 1.5 percent to 22.33 euros in Paris trading, while Casino jumped 2.7 percent to 65.17 euros.

Carrefour vs. Casino

The merger plan was proposed to Carrefour last month by Gama, an investment fund unit of Banco BTG Pactual, a Brazilian investment bank, setting up a power struggle with Casino.

Casino said the proposal was illegal because it violated a 2005 shareholders’ agreement that gives it the option to buy control of Pao de Acucar next year. Casino responded by raising its stake in Pao de Acucar to 43.1 percent last week.

Pao de Acucar Chairman Abilio Diniz and Casino control Brazil’s largest retailer through Wilkes, a joint venture. Casino, which has filed two requests for arbitration at the International Chamber of Commerce, said yesterday that Chairman Jean-Charles Naouri would defend the French company’s position “by all appropriate measures.”

Casino’s rejection led BTG Pactual to “temporarily suspend the proposal,” it said in an e-mailed statement yesterday.

Peninsula Participacoes, the Diniz family holding company, reaffirmed its support for the proposed merger and said Casino’s board didn’t carefully analyze all aspects of the proposal.

‘Lamentable’ Decision

“Casino’s unilateral decision is lamentable,” the company said in an e-mailed statement yesterday.

It wouldn’t be feasible to continue to pursue the merger under current circumstances, Peninsula said in the statement.

Carrefour said in a statement that conditions weren’t right for a merger after BNDES backed out of the deal.

BTG Pactual plans to negotiate directly with Casino to persuade it to reconsider the merger, Valor Economico reported, without saying where it got the information. The bank’s Chief Executive Officer Andre Esteves is convinced the possible deal could benefit all parties, including Casino, the newspaper said.

Separately, Folha de S. Paulo reported that Casino wants to buy the stake Diniz owns in Pao de Acucar. The newspaper didn’t say how it got the information.

--With assistance from Joao Oliveira in Sao Paulo. Editors: Terje Langeland, Nicholas Wadhams

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at

To contact the editor responsible for this story: Francisco Marcelino at

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