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French group is expected to relinquish control of the chain in the country; a share offer in Brazil could proceed by April

02/29/2024

Jean Charles Naouri — Foto: Leo Pinheiro/Valor

The French group Casino had to write off €1.85 billion in 2023 related to its investments in GPA, the operator of Pão de Açúcar.

This directly affected the French retailer’s €5.66 billion loss last year, the largest in the company’s history, approximately 1,700% higher than the loss in 2022.

Out of the €5.66 billion total, around €3.1 billion pertains to discontinued operations, including the losses with GPA. The remaining €2.5 billion are write-offs from the French retailer’s ongoing operations, the company informed the market.

The French are expected to withdraw from their investment in the Brazilian retailer, as they announced in June 2023, likely reducing their stake in the chain in stages, sources indicate. For that reason, they are required to account for a possible accounting loss in the recoverable value of the asset, termed “impairment.”

When the book value of an asset exceeds its recoverable value, the operation is devalued, leading to a calculated loss.

Companies must revalue intangible assets (such as brands and patents) annually, including goodwill paid on acquisitions due to the expectation of future profitability.

When the asset is no longer expected to generate returns, the business is considered impaired. The periods of sale or exit from investments are occasions when this adjustment can be significant.

On Wednesday, GPA’s shares closed with a significant 11.93% increase, the highest on the Ibovespa, heightening the pressure on investors in a short position. With Casino making the write-down, it underscores its commitment to exiting the asset—a move the market views positively for the business.

Of the €1.85 billion recognized as losses on GPA, €951 million was already accounted for in June 2023.

Losses were also recorded in continuing operations with the Colombian group Éxito, following the sale of 34% of Casino’s stake in the retailer to the Calleja group in 2023.

In that instance, an impairment charge of €841 million was recognized. Additionally, Casino’s large and superstore assets were devalued by €823 million.

Moreover, in the Franprix and Monoprix retail chains, based in France and controlled by Casino, there was a further write-down of €514 million.

Casino has been undergoing significant restructuring for years after its debt skyrocketed, leading its holding company to enter a form of court-supervised reorganization in 2019. Consequently, over the years, under creditor pressure, it has divested several billion euros worth of assets in Europe.

In the case of GPA, Casino is preparing for a probable halving of its stake in the retailer, currently at 40.9%, due to a primary public offering of shares that the French are unlikely to follow, resulting in significant dilution. This is expected to be the beginning of the divestment from the chain, according to people familiar with the matter. GPA announced an offering of R$1 billion in December.

This capitalization of GPA is still under consideration, and the intention is to proceed with it, Valor learned, after the fourth-quarter balance sheet was published on February 21. A source mentioned on Wednesday that, considering less volatility in the shares, the offer could be concluded between the end of March and April. Officially, the company has stated that studies for the operation have begun, but without specifying an exact date.

GPA’s current market capitalization is R$1.13 billion—about 20% of the group’s net equity at the end of 2023.

On the Paris Stock Exchange on Wednesday, Casino’s shares dropped sharply by 21.85% after the company announced that the projections made in November for the 2023-2028 period are no longer applicable. It also did not provide new estimates due to the process of change in process at the company.

Casino is in the midst of a transition of controlling shareholders, in a deal that has been in progress for at least a year.

A consortium led by Czech billionaire Daniel Kretinsky, who was already a shareholder in the group—with support from other investors, including the holding company Fimalac and the creditor Attestor—is expected to take control of the French company, significantly diluting Casino CEO Jean-Charles Naouri’s stake.

The agreement includes a €1.2 billion injection into the French group and the conversion of nearly €5 billion in debt into equity. The operations outlined in the plan are expected to be completed by March 27, the group stated on Monday.

The acceleration in the indebtedness of Casino’s companies over the last decade has led the group to seek debt renegotiation with creditors. According to the 2023 balance sheet, Casino ended the year with €6.2 billion in net debt, €1.7 billion more than the previous year. Cash and equivalents stood at €1 billion. Net sales decreased by 3.7% to €9 billion in 2023.

*Por Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/

This could be largest the French group’s divestment in Brazil

10/27/2022

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

https://valorinternational.globo.com/

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