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

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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/