To recover the trust of debt and stock investors in Casino Guichard Perrachon SA, the French retailer must minimize complexity and cut borrowings. Yet, Thursday’s announcement of a merger between its French retail businesses and those funded by billionaire Xavier Niel does neither.
In reality, the company’s ambitions to form a joint venture with Teract SA, the owner of Jardiland garden shops, further complicate matters.
Little wonder the French retailer’s stock dropped as much as 7 percent on Friday before rebounding marginally. Bonds maturing the following year reached their lowest level since October.
According to the terms of the transaction, Casino would combine its French retail holdings, including the Monoprix and Franprix chains, with Teract’s garden, pet, and food shops, which Casino will control, to form a new firm. InVivo, a stakeholder in Teract, will run a separate firm that will oversee the distribution of local food and agricultural goods.
Teract owes its origins to a special purpose acquisition business founded by Niel, Moez-Alexandre Zouari, and Matthieu Pigasse. Niel was a longstanding Casino partner, while Moez-Alexandre Zouari was a banker. Last year, they combined their blank-check company with InVivo Retail.
The casino will be able to utilize Teract’s brands, which include the Boulangerie Louise baking business, to cover excess space in its locations. As supermarket shopping switches online, it is not alone in seeking a solution to an excess of selling spaces. It is difficult not to conclude that this is another instance of Casino chairman and CEO Jean-Charles Naouri selling off the royal jewels to preserve cash and reduce debt.
While investors are justified in questioning Casino’s and parent company Rallye SA’s capital structures and huge debt burdens, they cannot criticize Naouri’s instinct on how customers want to purchase — establishing outlets near to where people live and supplementing them with online operations. Monoprix and Franprix continue to be reputable, Paris-based stores.
Given Casino’s debt levels — borrowings in the French business decreased to €4.5 billion ($4.8 billion) at the end of 2022 from €4.9 billion a year earlier, but still, dwarf the company’s market value of €900 million — a merger or investment in the French food businesses appeared increasingly probable. Niel is opportunistic, therefore it is clear that he recognizes the worth of Casino’s assets, and given Casino’s leverage, he has the upper hand.
Upon completion of the transaction, Casino will hold 85% of the merged businesses, while Teract will own 15%.
But, Casino’s stake might decline more. Casino and Teract are in discussion with possible investors about raising €500 million for the merged company. It will also be listed, which may allow Casino to sell a portion of its investment to reduce its debt.
This makes the structure of the Casino even more intricate. For the Casino to benefit, the new firm will have to pay a dividend to its parent. This appears to be the case with Casino and its parent Rallye. It relies on Casino’s cashflows to cover its own debt, despite the fact that Casino has not paid dividends for a number of years.
Casino has €1.2 billion in maturing bonds in 2019. It said last week that it was considering selling a portion of its remaining ownership in the Brazilian retailer Assai, which is valued at around $600 million, while also disposing of assets worth €400 million in France.
Provided the agreement with Niel and eventual listing go through, Casino will have another asset it may use to reduce its debt. Yet based on the reactions of investors and bondholders, this may come at a high cost.
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This column does not necessarily represent the editorial board’s or Bloomberg LP’s and its owners’ opinions.
Andrea Felsted is a columnist for Bloomberg Opinion covering consumer products and the retail sector. She was previously a correspondent for the Financial Times.