Retail Merger Sparks CVM Probe

A deal announced last week to merge the operations of Casas Bahia, a Brazilian retailer, into a CBD’s Globex, has raised red flags at the CVM, which appears to be preparing to conduct an insider trading investigation. CVM’s president Maria Helena Santana claims that trading in Globex, which is typically a low volume stock, was unusually high just ahead of the merger announcement, according O Globo. Between November 23 and December 2, the day before a deal was announced, Globex shares rose 22%. Volume was particularly high December 1, when around BRL230m changed hands, versus the previous month’s average daily level of around BRL58m, according to Economatica. “The CVM has called up with questions surrounding the client that put in the trading orders,” says an executive at Planner Corretora, the brokerage firm said to have executed the orders that bid up the share price. In fact, the rising share price pushed the controlling families of CBD and Casas Bahia to speed up signing and announcement of the deal, according to an executive close to the merger. They did not want the irregular trading to affect the deal, which had been in discussions for months, he adds. The deal proposes fusing retail assets of both CBD, which owns Globex and the Ponto Frio Chain, and Casas Bahia, which also owns the Extra Eletro chains, into 2 new entities, each roughly valued at BRL1bn, says the executive close to the deal. In addition, all of the online retail businesses will be put into a third vehicle. Estater, the Brazilian boutique, advised CBD on the deal, which is not likely to require additional financing, since it involves combining operations and keeping roughly equal ownership proportions, with CBD having the controlling vote. Casas Bahia did not hire any banks or outside financial advisors, and relied on Estater for advice on the combining of the businesses. Tozzini Freire provided legal advice on the contract. Barbosa Mussnich is heard to have been tapped for advice with the pr