This could be largest the French group’s divestment in Brazil
10/27/2022
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Cash-and-carry chain Assaí has a market capitalization of R$23 billion — Foto: Leo Martins/Agência O Globo
Casino is likely to sell a stake in the Brazilian cash-and-carry chain Assaí for nearly $500 million. The decision to study such a move was communicated Wednesday to Assaí’s board of directors. Casino is Assaí’s controlling shareholder with a 41% stake valued at R$9.4 billion. Assaí has a market capitalization of R$23 billion.
BTG Pactual, Itaú BBA and J.P. Morgan have been hired to “analyze the terms of the potential transaction,” which would be implemented through a secondary offering to be concluded at the end of November, Assaí said in a note. Casino stresses that no final decision has been made on the potential transaction. But sources told Valor that the group is likely to take this path.
The plan emerges following an increased risk of debt deterioration for the French group on the international market. The move also paves the way to improve the level of governance of the Brazilian chain. According to a source, the company is likely to turn itself into a company without a defined controlling shareholder after Casino’s partial exit, similarly to retailer Renner.
Changes may be made in this sense in the coming months, the source added, involving the appointment of Belmiro Gomes, Assaí’s current CEO, to the board of directors. Mr. Gomes would keep the executive position.
If confirmed, the $500 million deal will be the largest single asset sale made by the French group in Brazil or by one of its subsidiaries, such as GPA (owner of the Pão de Açúcar brand). The amount surpasses that of the sale of Via (owner of Casas Bahia) by GPA, which reached R$2.3 billion in 2019.
The group has had an asset sale plan in place for years to reduce its debt, with a target to reduce the equivalent of €4.5 billion by the end of 2023. However, the assets under negotiation do not yet reach this level.
According to the initial plans of the French company, there was no expectation of a partial sale of their position in Assaí, as Valor reported in September. But a recent worsening of market conditions forced the company to design an alternative path, a source familiar with the matter says.
“Banks have collaterals they can execute if debts come due, so it is the more general situation that is putting pressure,” a source said.
The credit risk measured by Casino’s five-year credit default swaps (CDS) rose to 12,970 basis points, from just 3,977 basis points at the beginning of the month, according to data compiled by Bloomberg.
The initial idea was to maintain the position in Assaí amid the prospect of short-term gains with a seamless business that is well-valued by the market, while seeking renegotiations with other assets, including GPA, in view of an eventual recovery of the valuation of the group, people familiar with the matter say. But this did not happen with GPA at the expected speed after the crisis caused by the pandemic and results still recovering.
After considering divestments in Assaí and Monoprix – another possibility on the table, according to two sources – Assaí would mean more immediate gain.
Another path being analyzed is the splitting of the Colombian group Éxito from GPA, its current controlling shareholder, to pave the way for selling the asset in Colombia. The business has posted high sales growth, but has low liquidity in the market. “But this is also a slower process than a deal with Assaí now,” said one source.
The reduction in Assaí’s stake comes 10 years after Casino became GPA’s largest controlling shareholder. In June 2012, Casino took control of the company, with the subsequent definitive departure of Abilio Diniz from the group after public disagreements with Casino’s chair and CEO Jean-Charles Naouri. The move occurs after the group sold retailer Via in 2019 to Michael Klein and a pool of funds and announced the spin-off of Assaí from GPA in 2020.
Today, investors and analysts believe that the decision to spin off Assaí was right, but that the French group has not been able to expand its retail business in Brazil in such an accelerated way, partly because of crises in 2016 and 2020, but also because of management decisions that did not give expected results in the retail arm, which is now being restructured.
Casino plans to reach March 2023 with debt around €2.5 billion, compared with a gross debt of €7 billion and net debt of €4.5 billion now. Rallye, Casino’s holding company, was placed under protection from creditors in 2019, and since then the group has been restructuring the debts of its operations.
(Ana Luiza de Carvalho contributed to this story.)
*By Adriana Mattos — São Paulo
Source: Valor International