Diniz’s GPA Proposal ‘Unsolicited, Hostile and Illegal’

The board of Casino Groupe has rejected a proposal to merge Brazilian retailer Grupo Pau de Acucar (GPA) with the Brazilian operations of its French competitor Carrefour. The move marks the latest battle in the war between the two French rivals for control of GPA. The Casino board made the announcement following a meeting in Paris with Abilio Diniz, GPA’s chairman and owner of 32.7% of the company stock. The board decision was unanimous, with the exception of Diniz. Casino remains the largest shareholder in GPA with 43% of the total stock. According to the company, the proposed transaction is not in the best interests of GPA, its shareholders, or Casino. The board cites a declining hypermarket sector, expansion into low-growth geographies, exposure to Carrefour, high execution risks and over-aggressive synergy expectations. It also describes the proposal as “unsolicited, hostile and illegal.” For shareholders, however, the deal could be a positive, given that some equity analysts say it represents an EV-to-Ebitda multiple of 6.1x versus GPA’s trading multiple of 5.4x. One analyst says the deal will have to be renegotiated to win over Casino, whose approval is required for any transaction to go forward. But if Casino insists on retaining its position as the controlling shareholder, Carrefour may be unable to offer any terms that Casino would find acceptable, the analyst adds. Brazilian development bank BNDES, which had announced it would provide BRL2.5bn in equity and debt financing for the merger alongside BTG, has been rumored to be withdrawing. BTG is now heard looking for other Brazilian backers in order to salvage an agreement. BAML, Goldman Sachs, Rothschild, and Santander are advising Casino, while Lazard is heard doing the same for Carrefour. GPA’s stock fell 1.569% on the NYSE to close at $42.03 Tuesday.