UPDATE 1-Brazil's Diniz steps down as Pão de Açúcar chairman

Fri Sep 6, 2013 7:45pm EDT

(Updates with official announcement)

SAO PAULO, Sept 6 (Reuters) - Abilio Diniz, the longtime chairman of Brazilian retailer Pão de Açúcar, stepped down on Friday, ending a long battle with France's Casino Guichard Perrachon SA.

The French retailer, which took control of Pão de Açúcar last year, had been trying to oust the chairman in recent months. The agreement ends the bitter feud and enables the two parties to halt all pending legal action against one another, Diniz and Casino said.

Diniz and Casino have been at loggerheads since the Brazilian businessman, whose father founded the retailer 65 years ago, began negotiations in 2011 with Carrefour SA , another French retailer, that could have given the Casino rival a stake in Pão de Açúcar.

Such a deal would have upended an agreement that Diniz had with Casino - which already had a stake in the Brazilian retailer - to ultimately take over the company. Both Casino and Carrefour are big players in Brazil, Latin America's largest economy, and both have been eager for further growth in emerging markets at a time when their home country is in a downturn.

Although Casino won the dispute, acquiring control of Pão de Açúcar in 2012, relations were further strained when Diniz, who stayed on as chairman, was elected this year as chairman of a major supplier to the company. Casino considered the role to be a conflict of interest.

Under the terms of their new agreement, Diniz will maintain a minority stake in the company, swapping the ordinary shares he has in a holding company for preferential Pão de Açúcar stock. He will not enjoy voting rights with the preferential stock.

At a news conference on Friday evening, Diniz, who was widely criticized by other investors for trying to find a way out of his original deal with Casino, called the exchange "excellent." (Reporting by Cesar Bianconi and Marcela Ayres.; Editing by Bernard Orr and Andre Grenon)