April 13, 2010 / 2:00 PM / 7 years ago

UPDATE 3-Brazil Pao de Acucar reviewing terms of Bahia deal

5 Min Read

* Casas Bahia wants better terms in Pao de Acucar deal

* Pao de Acucar says deal "valid" but agrees to talks

* Shares slump on concern over integration, savings (Updates with closing share price)

By Elzio Barreto

SAO PAULO, April 13 (Reuters) - Brazil's largest retail group Pao de Acucar said on Tuesday it is in talks to change the terms of its agreed takeover of smaller rival Casas Bahia, which complained that the $2.3 billion deal was unfair.

Pao de Acucar PCAR5.SA(CBD.N) stressed that the agreement is "perfectly valid" but agreed to negotiate potential changes to the terms of the deal, which was announced on Dec. 4 and has been singled out by industry experts as the largest-ever asset combination in Brazil's retail industry.

Changes to the original transaction, a non-cash deal involving a complex asset swap valued at about 4 billion reais ($2.3 billion) that created a retail giant with 40 billion reais in annual sales, might be hard for Pao de Acucar to swallow. That means there is a risk the deal could be undone.

"There are points that will be difficult for Pao de Acucar to change," said Daniela Bretthauer, a retail and consumer analyst at Raymond James in Sao Paulo. "There is a risk, indeed, that it could unravel."

Pao de Acucar shares tumbled as much as 6.1 percent shortly after opening on concerns changes to the deal may delay the integration with Casas Bahia and reduce the potential 2 billion reais in expected savings. The stock closed at 59.01 reais, down 5 percent.

The Sao Paulo-based retailer, controlled by the Diniz family and France's Casino (CASP.PA), said in a statement that Casas Bahia and its shareholders called for a review of the takeover deal. It cited no details on proposed changes.

Casas Bahia was not immediately available to comment. Pao de Acucar declined to elaborate on its statement.

Pao de Acucar, which got its start in 1948 as a corner store, agreed to spend nearly 5 billion reais last year to buy smaller rivals Globex GLOB3.SA and Casas Bahia, seeking to benefit from rising household income and employment that have stoked double-digit expansion in sales of home appliances.

Pao de Acucar Chief Executive Eneas Pestana said last week the company "hasn't stopped" eyeing more takeover targets to expand in the country's fast-growing northeast and to fend off increased competition.

The Casas Bahia deal helped consolidate Pao de Acucar's lead over big multinationals such as French retailer Carrefour (CARR.PA) and U.S.-based Wal-Mart Stores Inc (WMT.N), which have been investing heavily in Brazil in recent years.

"The Klein family is not trying to walk out on the deal. They are just making more noise than necessary" to fine tune the terms, said Luiz Nunes, director of hedge fund Claritas Wealth Management, which oversees $1.1 billion in assets.

Casas Bahia was founded on the outskirts of Sao Paulo in 1958 by Holocaust survivor Samuel Klein, who is often referred to as Brazil's version of Sam Walton, the Wal-Mart creator. Klein built a retail empire by courting the poor with payment plans, essentially extending credit where banks would not.

Proposed Changes

The Klein family wants several clauses of the agreement changed, including a lock-up period blocking the sale of stakes in the combined company, Brazilian business daily Valor Economico newspaper reported on Tuesday.

The family also claims Casas Bahia's assets were undervalued and hired Brazil's biggest mergers and acquisitions law firm, Pinheiro Neto Advogados, to advise on the renegotiation of the deal with Pao de Acucar, Valor added.

"The lock-up issue is about corporate governance, to show that the controlling shareholders have faith in the future of the business," Bretthauer added. "Pao de Acucar can't give in on that. It would be a bad sign."

The takeover gave both sides 120 days to iron out final terms, Valor said.

The deal could be on the brink of unraveling, O Estado de S.Paulo newspaper reported on Tuesday, citing unnamed sources close to the Kleins.

Representatives of the Klein family and Pao de Acucar executives met for hours on Monday at Casas Bahia's headquarters to discuss pending issues about the agreement, but no final decisions were taken, the daily said. ($1=1.768 reais) (Additional reporting by Vivian Pereira and Luciana Lopez in Sao Paulo)

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