Casino Guichard-Perrachon SA’s troubles in its home market triggered a record drop in its bonds as the French company races to reach a deal to combine those operations with a retailer backed by billionaire Xavier Niel.
(Bloomberg) — Casino Guichard-Perrachon SA’s troubles in its home market triggered a record drop in its bonds as the French company races to reach a deal to combine those operations with a retailer backed by billionaire Xavier Niel.
Casino reported a slump in earnings from France as well as plans to put its 9,100 stores in France in a venture with Teract SA, the owner of the Jardiland garden chain. The resulting venture is seeking investors to pump in €500 million ($529 million).
The stock fell as much as 5.8% Friday, having dropped more than 40% over the past year. Credit-default swaps are pricing in a 99% probability of default within five years.
“At this stage, we can’t rule out a broader debt restructuring,” according to Christine Kam, a credit analyst at Octo Finances.
The supermarket operator has been accelerating asset sales in order to shore up its finances. This week, it revealed plans to sell another part of its stake in Brazilian unit Assai worth $600 million following a previous sale less than four months ago. Analysts said more divestments will probably follow.
Casino said in February it began exploratory discussions with Teract on the merger, confirming a report by Bloomberg. People familiar with the matter said at the time the companies might eventually seek a public listing for the new entity.
Casino would control the company, and a separate new entity controlled by Teract shareholders would focus on the supply of agricultural products. The French retailer would gain Bio & Co, an organic food chain, and Frais d’ICI, which specializes in food sourced locally, just as the market for organic food plummets due to the cost-of-living crisis, wrote François Guyot, a credit analyst at Spread Research.
Teract’s Roots
Teract traces its roots to a special purpose acquisition company formed by Moez-Alexandre Zouari along with telecommunications entrepreneur Niel and banker Matthieu Pigasse. They merged their blank-check firm with InVivo Retail. Zouari has been a longtime Casino partner as he operates some Franprix and Monoprix franchises.
Teract shares rose as much as 4.2%.
The companies said they expect to reach a binding agreement by the end of the second quarter, and they’re in talks with investors who are interested in backing the deal.
Separately Casino said Friday earnings at its French retail unit dropped in the second half of last year by 7% at constant currencies amid sluggish sales. Net debt in France at the end of December came in at €4.5 billion, down by €339 million from a year prior.
Casino also said it aims to cut costs by €250 million and to reduce inventory by €190 million in the first half after it overestimated demand. That led to a negative free cash flow of €524 million in 2022.
Casino’s bonds due next year fell as much as 9 cents on the euro to 73 cents before bouncing back to 77 cents, signaling investors believe they won’t be repaid in full when the notes mature in March 2024.
Casino said in 2018 it spurned an approach by Carrefour SA for a possible merger, and Chief Executive Officer Jean-Charles Naouri has ever since been resistant to letting go control of the company.
He’s since managed to restructure the debt of Rallye SA, a unit that owned a majority stake in Casino, without losing his grip on the retailer.
“With all the asset sales planned, the company should have enough liquidity to meet short-term debt maturities,” Octo’s Kam said. “However, investors are looking look at the high level of cash burn and are worried that the main shareholder may not be so keen on repaying debt if he’s at risk of losing control.”
–With assistance from Luca Casiraghi, Giulia Morpurgo and Irene García Pérez.
(Updates with analyst comment in fourth, seventh and last paragraph)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.