Carrefour's Brazilian takeover on hold

The Brazilian retail soap about the ‘marriage’ between Carrefour Brazil and Pão de Açúcar is probably nearing its conclusion, as the Brazilian state withdraws its financial backing for the merger. This is a consequence of Carrefour’s arch-rival – and Pão de Açúcar’s owner – Casino’s decision to officially oppose to the merger.

Controversial merger plans

Carrefour’s 10 billion euro takeover plans have always been very controversial, as its rival Casino currently owns a majority of Grupo Pão de Açúcar’s shares. Casino had saved the Brazilian company from bankruptcy in 1997 and has invested over two billion euro in GPA. Nevertheless, the merger with Carrefour was supported in Brazil’s highest ranks, including the president, who called the merger “a good thing for Brazil” and who promised to invest 1.7 billion euro in the construction through state development bank BNDES.

The notion that a state bank would invest such a large amount of money in the project of one of Brazil’s richest citizens (and the nature of that project: selling the biggest Brazilian retailer to foreigners) was highly controversial. Added to these ethical concerns were legal problems: the plan would violate the shareholder agreement between GPA and Casino, resulting in – so far – two requests for arbitration against the former. BNDES also will face prosecution, as an enquiry has been initiated to check whether the merger would have been proper use of public money.

Merger suspended… for now?

When Casino’s board of directors unanimously decided to oppose the merger, BNDES announced it was cancelling the deal. Casino is majority shareholder of Pão de Açúcar’s owners Wilkes, and this decision caused co-owner Abilio Diniz to suspend the merger plans. But as every soap needs a cliffhanger, he added that he still believes that the merger is very valuable to shareholders and that this decision may well be re-evaluated in the future.

As the shareholder agreement with Casino forces Diniz to relinquish his presidency of Pão de Açúcar next year, many analysts believe that the flirt with Carrefour was the last attempt of Diniz to hold on to his holding. RetailDetail earlier pointed towards another key person for whom this merger is a matter of pride: Pierre Bouchut, general director at Casino until his dismissal in 2005 and now CFO at Carrefour. Both of them however now seem to be aiming for a lost cause.