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* Casino taking control of retailer, holding company boards * Brazil rivaling France in Casino's revenue, profits * Investors focus on future of Chairman Diniz after spat By Brad Haynes and Vivian Pereira SAO PAULO, June 22 (Reuters) - French group Casino is set to take control of Brazil's Grupo Pão de Açúcar on Friday, marking a new era for the biggest Latin American retailer after a scarring ownership spat with the company's founding family. The transition begins at a morning meeting in Sao Paulo, where Casino Chief Executive Jean-Charles Naouri takes the helm at Wilkes, the holding company that controls the retailer, as laid out in a 2005 shareholder pact. Hours later, Casino's handpicked representatives should take a majority of seats on Pão de Açúcar's board. With that, Casino will secure its hold on operations in a market that may soon overtake France as the group's main source of revenue, as a buoyant Brazilian middle class helps offset weak growth in Europe. Operations in Brazil already represent 44 percent of Casino's estimated sales and more than half its operating profit. But all eyes at Friday's meetings will be on the man loosening his grip on Pão de Açúcar - Casino's estranged partner Abilio Diniz, who built his father's grocery chain into a retail empire with timely capital injections from the French group. Diniz and Naouri's decade-long relationship was shattered last year, when the Brazilian tycoon tried to orchestrate a merger with Casino's rival Carrefour. Naouri took the proposal as a betrayal, accusing Diniz of trying to break their accord and threatening lawsuits to hold onto Pão de Açúcar. Now minority shareholders are watching for signs of how much Casino will marginalize Diniz. The 75-year-old billionaire remains Pão de Açúcar's chairman, but could lose much of his autonomy with Naouri watching his every move. With relations soured between Diniz and Naouri, their camps have discussed alternatives to their current shareholder pact that would allow them to part ways. But both are famously tough negotiators and a compromise has been elusive. The uneasy partnership between Pão de Açúcar's biggest shareholders has raised concerns among some investors, who fear that a diminished - or departed - Diniz could sap the retailer's acquisition-driven growth. The company's share price reflects expectations of more ambitious takeovers ahead, analysts say. The stock's forward price-to-earnings ratio of 20 is nearly double the average of top rivals, according to Thomson Reuters StarMine. The stock gained 33 percent in the first four months of the year, as solid earnings growth outweighed concerns about the ownership spat. But shares have shed 17 percent since April, nearly twice the drop on the benchmark stock index. Pão de Açúcar shares fell 3.8 percent on Thursday, their biggest drop in almost a month. DISTRUSTFUL OWNERS Diniz wants a free hand to carry on with the aggressive dealmaking that has defined his reign at the company, according to sources with knowledge of his thinking. He bought control of Pão de Açúcar from siblings in the 1990s and has grown it since then into Brazil's biggest retailer by acquiring rival supermarkets and home appliance chains. The sources say Diniz now fears being hemmed in by a distrustful controlling owner. For instance, they say he proposed a takeover of wholesale chain Tenda late last month, only to have Casino quash the idea. According to sources close to Casino, Pão de Açúcar executives assessed the potential deal and made their own decision about its merits without direct intervention from Naouri or Diniz. A senior Pão de Açúcar executive said in an interview at the end of May that Tenda remains an interesting target for acquisition. Naouri has repeatedly praised management at the Brazilian retailer and signed off on recent plans to accelerate the growth of existing operations. Diniz is not the only partner whose reluctance to let go could cause problems for Casino. The Klein family, who founded a home electronics chain bought by Pão de Açúcar in 2010, have chafed in their role as minority shareholders, sparking media reports of an attempt to buy back the group's electronics unit.