UPDATE 1-Casino not selling Pão de Açúcar appliance unit-sources

Tue Nov 27, 2012 1:11pm EST

* Diniz wants Casino to speed up decision on ViaVarejo unit

* No formal bid for ViaVarejo has been submitted -source

* Diniz, Casino have been at odds since April 2011

* Diniz representative: no comment on potential negotiations

By Vivian Pereira and Guillermo Parra-Bernal

SAO PAULO, Nov 27 (Reuters) - Casino Guichard Perrachon , the controlling shareholder of Grupo Pão de Açúcar SA , is not considering a sale of the Brazilian retailer's home appliance unit even though Pão de Açúcar's chairman has voiced interest in acquiring it, two sources familiar with the situation told Reuters on Tuesday.

According to both sources, who declined to be quoted because of the sensitivity of the issue, Casino is looking for ways to improve the performance of ViaVarejo SA, as the unit is known. One of the sources said that no offer has been made for ViaVarejo, which is Brazil's biggest appliance chain.

Casino's stance comes as Pão de Açúcar Chairman Abilio Diniz formally asked Casino to sell ViaVarejo to him, according to a third source with direct knowledge of the situation. Diniz and Casino have been at odds since April 2011, when the Brazilian tycoon tried to engineer a merger with a rival without Casino's consent.

Earlier this year, Casino, France's No. 2 retailer, took control of Pão de Açúcar, which was founded by Diniz's father in 1948. A sale of ViaVarejo to Diniz, a move that could facilitate his exit from Pão de Açúcar, is seen by analysts and investors as the most effective way to end the dispute.

Diniz and his family are in the process of selling their voting shares in Pão de Açúcar to Casino through a put option agreement.

"Abilio is fully interested in seeing the negotiations make progress ... Casino has already said that it has no interest in owning consumer electronics businesses it doesn't own elsewhere," said the third source. "But this indecisiveness is bad for everyone."

Representatives of Casino in Paris and São Paulo declined to comment. A Diniz representative declined to comment on any potential negotiations between Diniz and Casino over ViaVarejo.

LATEST FEUD

Brazilian media reports have highlighted the latest feud between Diniz and Casino Chief Executive Jean-Charles Naouri. Diniz was barred from a Casino meeting with Pão de Açúcar management at the French retailer's Paris headquarters on Monday, newspapers Valor Econômico and O Estado de S. Paulo reported.

According to Valor, Diniz sent a letter on Sunday to Naouri, explicitly seeking control of ViaVarejo. The letter said it was necessary to decide the fate of ViaVarejo, adding that "the lack of a decision on the matter" could be "damaging" for Pão de Açúcar and the unit, Valor reported.

Diniz could swap his 6.5 billion reais ($3.1 billion) stake in Pão de Açúcar for ViaVarejo, and still receive another 1.5 billion reais from Pão de Açúcar for his exit, the newspaper reported, without citing sources.

The Diniz representative confirmed that the Brazilian tycoon was barred from the Paris meeting.

INDECISION HURTS

The two men have exchanged angry letters, according to the papers. Diniz argued that his presence at the meeting "was necessary," while Naouri replied that the meeting was to discuss Casino's goals for the company and Diniz was not entitled to be there, Estado said.

Estado reported that Diniz was forced to wait in Casino's reception area for more than 40 minutes on Monday. While waiting, he sent a letter and several emails to Naouri.

"Regarding ViaVarejo, Casino would likely sell control only if it were to receive a fair value, which would benefit Pão de Açúcar shareholders," wrote Morgan Stanley & Co analyst Lore Serra in a client note on Monday.

Serra resumed coverage of Pão de Açúcar shares with an "overweight" rating.

The decade-long business relationship between Diniz and Naouri was shattered last year, when the Brazilian tycoon tried to orchestrate the merger with Carrefour SA, Casino's archrival in France.

Naouri accused him of trying to break their agreement and threatened lawsuits to hold on to Pão de Açúcar.

The feud has been largely ignored by investors. Pão de Açúcar shares have gained 40 percent this year and are trading at 26 times expected 2013 earnings - above the 21 times the average of 11 global rivals, according to Thomson Reuters data.

Pão de Açúcar shares were down 0.5 percent at 92.54 reais in Brazil on Tuesday.

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