Carrefour has received an offer to create an equal joint venture with Grupo Pão de Açúcar, the leading distribution group in Brazil. The deal would give rise to the largest retailer in the South American country, with estimated revenues of over 30 billion euros for 2011.
The proposal was presented by Gama, a holding company wholly owned by a fund managed by investment bank BTG Pactual. The joint venture aims to combine the assets of Carrefour and those of Companhia Brasileira de Distribuição (CBD) (trading name of Pão de Açúcar).
Hostile act – The Diniz family that controls CBD Pão de Açúcar, together with the world's number two in retail, the French group Casino, is ready to offer its titles to Carrefour, according to a spokesman. But this is sparking strong tensions between competitors in Brazil. In fact, Casino had started an arbitration procedure a few days ago before the International Chamber of Commerce, calling its partner Diniz to order and verifying the rumors about a possible agreement between the entrepreneur and the French giant. And he had obtained that the Commercial Court of Nanterre seized 22 Carrefour documents relating to the discussions on the future of CBD. Today Casino said it will "do everything to block" this merger. The Saint-Etienne distribution group has reported the dominant position of this new entity to the Brazilian competition authorities. "This project has never been mentioned by CBD before being made public and this gives it an obviously hostile character," he said.
The operation – The joint venture envisages a two-stage operation. The shares of the Brazilian subsidiary of Carrefour will merge with the Companhia Brasileira de Distribuição (CBD), which in turn will merge into the Gama holding, an investment fund managed by BTG Pactual. Gama controls more than 50% of CBD and would receive a capital injection of 1,5 million euros. There will then be a 50-50 rebalancing of Gama and Carrefour's stakes in CBD, which will allow for global consolidation for Carrefour as of January 1, 2013. Gama will transfer over 50% CBD stakes to the new company at an exchange rate the issue by Carrefour of 90 million "preference shares", which represent approximately 11,7% of the capital of the French giant. Furthermore, Gama will reserve the option to purchase additional Carrefour shares on the market, up to 6% of the latter's share capital. The Brazilian company Gama will become a reference shareholder of the French distribution group. The holding will sign a shareholding agreement with the Blue Capital funds (Colony Blue Investor and Groupe Arnault) which today hold a total of 14,1% of the capital and 20,2% of the voting rights of Carrefour. This pact will limit their joint ownership to a maximum of 30% of the capital and voting rights in Carrefour, including preference shares.
Approvals – The operation will be subject to the possible approval of CBD before implementation. Furthermore, the proposal will be the subject of a meeting of the Carrefour board of directors in the next few days. The offer is subject to the final approval of the board of directors of the Brazilian National Development Bank (Bndes), but its Technical Committee has already expressed itself in favor of the agreement.
Rating – In the morning, the rating agency Fitch lowered the rating of Carrefour to BBB+ from the previous A- and bringing the long-term outlook to “negative”. The rejection is a consequence of the 35% drop in operating profit in France in the first half of the year and the forecast to proceed with the spin off of the Dia Discount stores. Fitch is concerned about the pace of recovery of the French group and the pressure from shareholders.
MY BAG – Carrefour shares gained 2,33% in Paris (at 13.15pm local time). Its competitor Casino, a shareholder in CBD, fell by a packed 5,46%.
Sources: Challenges, Stay
