* Carrefour CEO has lost credibility, says Knight Vinke
* Vinke will support Dia spin off, not seeking board seat
* Adds Carrefour must focus on turnaround plan
* Vinke says not convinced by possible Brazil deal
(Adds quotes, details, background)
By Dominique Vidalon
PARIS, May 31 Carrefour boss Lars Olofsson needs
to resist pressure from its top shareholders Colony Capital and
luxury mogul Bernard Arnault to regain credibility with minority
investors, U.S. activist fund Knight Vinke said on Tuesday.
The U.S. asset manager, which earlier this month led a
successful rebellion against Carrefour's plans to spin off
property assets, said the world's second-biggest retailer needed
to improve corporate governance and consult more with smaller
The dissident investor also expressed reservations about a
possible merger of Carrefour's Brazilian business and local
rival Pao de Acucar. [ID:nLDE74U08Q]
Knight Vinke founder and chief executive Eric Knight
circulated during the meeting a letter he had sent Carrefour
Supervisory Board Chairman Amaury de Seze to voice concern that
a possible merger could be dilutive to Carrefour shareholders,
given "the high multiples" of Pao de Acucar.
However, Knight said it would be a disaster if Olofsson left
Carrefour because it must deliver on his turnaround plan for the
"Carrefour's recovery plan is crucial and its success could
create enormous value," Knight told journalists.
"Governance is a main problem at Carrefour and management
has lost some of its credibility but it would be a disaster if
Olofsson left...Lars Olofsson must be given enough time to see
if this (the turnaround plan) works," he added.
DIA SPINOFF FAVORED
Olofsson has put his job on the line by taking the reins of
the French business, which accounts for about 40 percent of
sales, and is spearheading the rollout of new format
hypermarkets -- the heart of its recovery strategy.
Carrefour, weakened by two profit warnings last year, has
also faced a series of defections by top managers and a board
member due to dissent over the benefits of the property deal.
Critics of Carrefour argue the group is too influenced by
top shareholder Blue Capital, which combines luxury billionaire
Arnault and U.S. real estate specialists Colony Capital.
Blue Capital, which owns about 13.5 percent of the equity
and 20 percent of the voting rights at Carrefour, was a driving
force behind Carrefour's plans to spin off 25 percent of its
European property assets and all of its Dia discount chain.
The duo is now down 40 percent on their 2007 investments and
is pushing for ways to boost the value of the business.
Knight Vinke, which owns 1.5 percent of Carrefour's equity
and has a track record of pushing for change at major companies,
opposed the property spin off, saying it could weaken the
group's competitive position.
Along with other interest groups, it forced Carrefour to
postpone the property listing. [ID:nLDE74407Z]
Knight Vinke said it would vote in favour of the demerger of
discount chain Dia at Carrefour's annual shareholder meeting on
June 21, and would not seek a seat on the company's board.
"The big benefit of the Dia spin-off in our view is that it
will allow Dia's management to focus on Dia's recovery and
Carrefour to focus on its turnaround," Knight said.
'PIECEMEAL' APPROACH FEARED
Knight revealed he had asked Carrefour for a board seat in
December but had been turned down. He did not plan to again ask
at the June 21 meeting.
"Today the group is sufficiently destabilised... We are
seeking changes but in a consensual manner," he said
"We do not want to destabilise a large group like Carrefour,
which is France's number one private sector employer."
Knight stressed it would be premature to take a firm
position on the Pao de Acucar (CBD.N)(PCAR4.SA) deal speculation
given that Carrefour has yet to make anything public.
He nevertheless told journalists that a "piecemeal" approach
to the sale of Carrefour's non-European assets would not create
"If the board wants today to do a tranformational deal,
basically merge these two Brazilian businesses, create a $12
billion group whatever, you might as well lump the other ones
(non-European countries) in there, make a $20 billion group and
have it listed," he said.
"But first of all we need the board to confirm this is
something (a Brazil sale) they are looking at. We see this as an
alternative," he added.
Knight Vinke typically buys small stakes in large European
companies and then persuades other investors to join its
campaign to change the target's strategy.
Since Knight Vinke was founded in 2003, it has been
credited with driving through change at companies including
banking group HSBC (HSBA.L), oil giant Royal Dutch Shell
(RDSa.L), French utility Suez GSZ.PA and Dutch media group
(Reporting by Dominique Vidalon, Writing by Mark Potter,
Editing by Paul Sandle and Jon Loades-Carter)