June 22, 2012 / 11:36 AM / in 5 years

New era dawns at Pão de Açúcar, Casino takes helm

5 Min Read

* 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.

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