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Carrefour Bid for Casino Would Be a Big Roll of the Dice

Lionel Laurent

(Bloomberg Opinion) -- Talk of a tie-up between the French hypermarket stalwart Carrefour SA and its arch-rival Casino Guichard Perrachon SA is back, almost a year after a first stab at exploring the idea ended in a public clash of egos and accusations of dishonesty.

Carrefour has again denied an offer is in the works, but shares of the heavily-indebted, heavily-shorted Casino rose 3% on Monday after BFM reported that the grocery chain was thinking about an approach. While there would be obvious advantages for both sides in a deal, navigating the politics around potential job cuts and getting to an agreed price would be tough. A selective sale of assets looks more likely.

The time passed since this combination was last considered has at least made a difference in how the big personalities involved – Carrefour boss Alexandre Bompard and Casino’s boss and lead shareholder Jean-Charles Naouri – might think about a move to create France’s biggest supermarket group. In late 2018, Naouri’s debt-laden empire was under attack from short-sellers, Casino shares were trading near 20-year lows and trust was at a minimum. Despite both men’s similar background in France’s elite schools and civil service corps, nothing clicked. Bompard, 24 years Naouri’s junior, reportedly enraged his rival by using the informal “tu” to address him.

The pressure on Naouri has intensified since his investment vehicle Rallye SA (through which he controls Casino) entered creditor protection in May, but Casino is in a happier place. Its share price has jumped about 50% in a year, giving it a market value of 5 billion euros ($5.5 billion). It’s no longer being squeezed to help pay off Rallye’s debts and its Monoprix and Franprix stores give it a leading position in Paris. Online delivery deals with Amazon.com Inc. and Ocado Group Plc are another positive.

This has left Naouri in a better position than some of his hedge fund antagonists were anticipating. He still controls Casino, even if his shares have been pledged to bank lenders as collateral, and the rebound in the company’s market value is a bonus. Daniel Kretinsky, a Czech billionaire, has backed his strategy by buying a Casino stake. While there’s still a need to sell assets to lighten Rallye’s debt load, Naouri has options to avoid a fire sale.

On Carrefour’s side, Bompard would be foolish not to take a serious look at Casino given the intense competition in France’s supermarket sector. Carrefour’s 20% share of the French grocery market is in danger of being chipped away by its closure of hypermarkets and the threat from German discount chains such as Lidl. Adding Casino’s 11% market share would remove a rival and save money. Barclays estimates that the deal could deliver about 1 billion euros in gross synergies, or 1% of the companies’ combined annual revenues.

Politics and price are, however, serious hurdles. Casino shares already trade at a premium to the sector, and the company would probably demand a sweetener to give up control. Carrefour has cash after selling a stake in a China business, but a higher value bid would force it to try to extract more savings. That might not be easy with regulators almost certainly demanding store disposals and France’s president Emmanuel Macron desperate to avoid layoffs.

Asset sales might be better, or maybe a Brazil-only deal. Carrefour’s and Casino’s combined Brazil entities would have a market share of 54% in that country so some disposals would be necessary. But it might still be a way to free up some cash for Naouri and improve Carrefour’s profit margins in Latin America. Given the barbs being traded between Brazil’s President Jair Bolsonaro and Macron over trade and the environment, this might be one idea on which the leaders can agree.

To contact the author of this story: Lionel Laurent at llaurent2@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.

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