Jean-Charles Naouri built a French grocery empire over more than 30 years with generous helpings of borrowed money and financial engineering. It may take new management to keep it from collapsing under the weight of its debt.
(Bloomberg) — Jean-Charles Naouri built a French grocery empire over more than 30 years with generous helpings of borrowed money and financial engineering. It may take new management to keep it from collapsing under the weight of its debt.
The fate of Casino Guichard-Perrachon SA now rests on a deal with Moez-Alexandre Zouari, who got his start two decades ago running stores under franchises from Naouri’s company, and whether the two men can pull off a merger of two retail groups. Their ambition is to list the new company on Euronext as soon as September, according to three people familiar with the matter.
For the 74-year-old Naouri, it’s a gambit to save Casino from falling into the hands of creditors as he faces $3.2 billion in debt repayments in the next two years, even if it might mean ceding management to the younger man. For Zouari, there’s a chance he could end up running businesses that are household names in France with thousands of shops across the country.
The plan is to merge Casino’s French retail operations – which include the Monoprix, Franprix and Casino grocery chains – with stores owned by Teract SA, run by the 52-year-old Zouari. They announced the outlines of an agreement last month, but the details remain to be worked out.
“The Teract deal is the only deal in town,” said Tomas Mannion, a senior investment analyst at Sarria Ltd., an independent credit research firm. “Apart from a white knight sale — which this one essentially is — there is no other way.”
Casino and Teract are seeking investors willing to pump in €500 million, a task that may be made easier because Teract’s biggest shareholders include the giant agricultural cooperative InVivo Group, telecom entrepreneur Xavier Niel and banker Matthieu Pigasse.
One possible source of funds is Bpifrance, the state investment bank, which already owns shares in Teract, though there are no talks under way, said the people familiar with the matter, who asked not to be identified because the matter is private. Bpifrance, Teract and Casino declined to comment.
Pulling the deal together will be tough. Grocery stores face slim margins and consumers already are cutting back on spending to cope with inflation. Plus, there’s a lot of unanswered questions about the how the merger will work, particularly in how much debt will be shifted from Casino to the new company and what consent will be needed from bondholders.
Naouri has promised to ensure that the new company won’t be too heavily indebted. He’s agreed to cap debt at two times earnings, Zouari said. While no decisions have been made about who would be in charge of day-to-day operations, investors are speculating that Zaouri may be calling the shots.
“The retail industry is increasingly dominated by discounters and by giant food makers that make unacceptable margins,” Zouari said in an interview. “We want to go the opposite way and create a high-quality offering that can be the equivalent of a 5-star-hotel, but in fruits, vegetables and bakery.”
Many investors are skeptical that they’ll be successful, and many are betting that a restructuring for Casino is inevitable. The company’s bonds trade at deeply distressed levels and the shares plunged 61% over the past year. Naouri, a former investment banker, controls Casino through a series of publicly traded investment vehicles; those companies are already under court protection from creditors.
“The Teract merger of Casino’s French operations is another of his tricks to calm the banks, but it’s not solving anything,” said Pierre-Olivier Essig, an analyst at AIR Capital in Geneva.
But if the pair can pull it off, it will cement Naouri’s reputation as a shrewd tactician. And it may be one of the Algeria-born entrepreneur’s final high-wire acts before retirement.
Naouri has every incentive to make the Teract venture work. Market watchers say he has no choice, given that a merger with a rival such as Carrefour SA could lead to job losses and store closings — political poison in France, where the government doesn’t hesitate to weigh in on corporate deals.
“Casino is his reason in life and Jean-Charles is working for his legacy now,” said Zouari.
–With assistance from Julien Ponthus.
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