Casino and Carrefour's Brazilian war escalates

French distribution giant Carrefour is considering a merger with Grupo Pão de Açúcar (CBD), the biggest player on the Brazilian distribution market. Stakes are high, because Brazil is the third largest food market in the world and the possible merger would result in the largest private employer of South-America, reaching a yearly turnover of 41 billion dollar (28 billion euro).

Casino saved Pão in 1997

Carrefour’s rival Casino is not amused: they have invested over two billion euro in CBD since the start of their alliance in 1997, when the Brazilian group was in serious financial trouble and offered 37% of its shares and (more important) 50% of the votes in controlling holding Wilkes for its survival – a share that has been raised to 43% today. Casino has always hinted it wanted to have the absolute majority by 2012, and 74 year old millionaire and CBD owner Abilio Diniz now has taken a drastic step to prevent that from happening: starting talks with Casino’s arch rival. The Brazilian blames Casino it never offered the group the opportunities for international expansion.

Today Casino CEO Jean-Charlers Naouri has issued a very sharp press release in which he called the secret talks illegal: Casino and CBD included in their contract that CBD can not hold negotiations regarding its future without Casino’s involvement.

“It is not illegal to talk”

“It is not illegal to talk”, says Carrefour. The second biggest distributor denies it received an offer of Abilio Diniz. The French chain did however receive one from Gama, financed by the Brazilian Development and Investment banks. The plan would be to merge Gama and CBD first, and afterwards include Carrefour’s Brazilian activities as well.

Casino wants to play it hard and started an international legal procedure to call its Brazilian partner to order. It also asked the judge at Nanterre to seize 22 documents about CBD’s future at Carrefour’s headquarters as they think the real power between the Carrefour-CBD merger is Pierre Bouchut, general director at Casino until his dismissal 6 years ago and now CFO at Carrefour.

A plan of diversion or a case of logic?

Casino claims Carrefour uses the merger to turn the attention away from bad financial results in both France and Brazil, but Carrefour stresses economy factors: the operation could, according to them, lead to 700 million euro of extra synergies. At the same time, Carrefour points out that their board of directors has not yet studied the proposals and that CBD’s – and therefore Casino’s – approval is needed anyway.

A major supporter of the Carrefour-deal is Dilma Rousseff, the new Brazilian president. Her minister of economy, Fernando Pimentel, also declared that “the deal, if realised, is hugely important for Brazil”.

To be continued.