UPDATE 1-Galeazzi quits Brazil's Pão de Açucar board as rift widens

Thu Jun 20, 2013 6:03pm EDT

* Galeazzi oversaw turnaround at Brazil biggest retailer

* Chairman Diniz looking for a replacement to Galeazzi

* Resignation underscores tension between Casino, Diniz

By Cesar Bianconi

SAO PAULO, June 20 (Reuters) - Claudio Galeazzi, the executive who oversaw a turnaround in Grupo Pão de Açucar SA , Brazil's largest retailer, decided to step down as a board member as a rift between the company's two biggest shareholders escalates.

Galeazzi said there was mounting pressure from Casino Guichard Perrachon & Cie, the French retailer that is Pao de Acucar's largest shareholder, to disclose the nature of his business relations with food processor BRF Brasil Foods SA, according to a letter obtained by Reuters. Brasil Foods is a supplier to Pão de Açucar's supermarket division.

Casino has long said that any outside business relations between Pão de Açúcar executives and Brasil Foods imply a conflict of interest. Galeazzi, who was brought into the company by Chairman Abilio Diniz in 2007, is currently a partner at investment banking firm BTG Pactual Group.

A rift between Casino and Diniz, who is Pao de Acucar's second biggest shareholder, has gained momentum since Diniz was appointed chairman of Brasil Foods earlier this year. Casino fell out with Diniz in 2011, when the Brazilian tycoon sought to orchestrate a merger between Pão de Açúcar and Carrefour SA , Casino's arch-rival in France.

"Since I assumed my board seat there have been made a number of insinuations about my probity, including an attempt to use my professional relation with BRF to put my professionalism under question," Galeazzi said in the letter.

"My relation with BRF Brasil Foods never left me in a conflict of interest," Galeazzi wrote.

Casino said, in a statement, that it had asked Galeazzi about his dealings with Brasil Foods but he refused to answer.

Many executives loyal or close to Diniz have left Pão de Açúcar in recent months as a result of the rift.

A source with direct knowledge of the situation told Reuters that Diniz is looking for a replacement to Galeazzi. The source declined to name potential candidates for the board seat.

A spokeswoman for Pão de Açucar could not be contacted for comment. Efforts to reach Galeazzi were unsuccessful.

Shares of Pão de Açucar shed 2.1 percent to 96.49 reais on Thursday. The stock is up 9.7 percent this year.

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