June 30, 2011 / 9:17 AM / 7 years ago

UPDATE 2-Casino ups stake in fight for Brazil's Pao de Acucar

* French retailers fight for dominance of Brazil market

* Casino raises Pao de Acucar stake to 43.1 pct from 37

* Casino shares up 0.14 pct, Carrefour down 1.3 pct

(Adds analyst, trader, source, background, updates shares)

By Reese Ewing and Dominique Vidalon

SAO PAULO/PARIS, June 30 (Reuters) - French retailer Casino tightened its grip on Grupo Pao de Acucar , as it battles with arch-rival Carrefour for control of Brazil’s top retailer.

Casino on Wednesday raised its stake in Pao de Acucar to 43.1 percent from 37 percent, spending an estimated 550 million euros to buy 16.1 million preferred shares in the market.

The move came after Carrefour said on Tuesday it was discussing a deal with Pao de Acucar Chairman Abilio Diniz to merge Pao de Acucar with Carrefour Brazil, the second-largest retailer in this fast-growing market.

The plan angered Casino as it could give its French rival Carrefour a 50 percent stake in the leading player in Brazil’s $230 billion retail market, depriving Casino of a key growth engine and leaving it as a minority shareholder in the future company.

Casino shares were up 0.14 percent at 1139 GMT while Carrefour was down 1.32 percent.

One analyst estimated that if Diniz could pull off the merger with Carrefour Brazil, the new entity would leave Casino with a stake of just 14.5 percent in a retail giant controlling a third of Brazil’s retail market, several times larger than Wal-Mart in Brazil.

Carrefour, Diniz, Brazil’s national development bank BNDES, investment bank BTG Pactual and Casino would be the main shareholders of the new unit.

The board of Carrefour — the world’s second-largest retailer after Wal-Mart — is expected to meet later today, sources close to the matter told Reuters.

COMMITMENT, BETRAYAL

Casino — a much smaller player, whose market capitalisation of 7.1 billion euros is less than half of Carrefour’s 18.6 billion — said on Thursday it wanted to reaffirm “its commitment towards Brazil and Pao de Acucar, as well as its executive team, its employees, its management”.

Casino Chairman and Chief Executive Jean-Charles Naouri, has said the Carrefour/Diniz proposal was illegal, and that Casino was in a position to block it.

The talks with Carrefour were initiated in April by the flamboyant Diniz, sources told Reuters last month.

Control of Pao de Acucar currently rests with Wilkes Participacoes, a holding company in which Casino and Diniz each have a 50 percent voting stake. As part of its partnership with Diniz, started over a decade ago, Casino holds an option to boost its control of Pao de Acucar in 2012.

Naouri has asked Diniz to call a board meeting of Wilkes, a source close to the matter told Reuters on Wednesday

Market watchers say that although the stakes are high Naouri, a former financier and French government official, may be hedging his bets.

“I think Casino is flexing its muscles ahead of future negotiations,” one Paris-based analyst said.

“Casino reinforces its negotiation power and in a worst-case scenario will be able to negotiate at a high price its exit from GPA’s (Grupo Pao de Acucar) capital,” a Paris-based trader said.

A source close to the matter however told Reuters on Thursday that “Casino is not in the context of exiting the capital of Pao de Acucar”.

Casino also shuffled assets elsewhere in South America on Wednesday.

Colombia’s No. 1 retail chain Almacenes Exito — 54 percent owned by Casino — bought majority control of two Uruguayan supermarket chains which are also controlled by the French group, for $746 million.

“These two moves are not related but are part of the same stategy, boosting Casino’s footprint in Latin America,” a Casino spokesman told Reuters. (Editing by Geert De Clercq and Jane Merriman) For more stories about this battle, click on:

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