French Retailer Casino Takes a Risky Spin With Billionaire Xavier Niel

To restore debt and equity investors’ confidence in Casino Guichard Perrachon SA, the French retailer needs to reduce complexity and bring down borrowings. Yet the deal announced on Thursday, to merge its French retail operations with those backed by billionaire Xavier Niel, does neither.

In fact, the plans to put its 9,100 stores in France into a venture with Teract SA, owner of Jardiland garden centers, make things even more convoluted.

No wonder shares in the French retailer fell as much as 7% on Friday before recovering slightly. Bonds due next year fell to their lowest level since October.

Under the terms of the agreement, Casino will put its French retail operations, including the Monoprix and Franprix chains, into a new entity with Teract’s garden, pet and food retailers, which Casino will control. Another company, which will be controlled by Teract shareholder InVivo, will oversee the supply of local food and agricultural products.

Teract traces its roots to a special purpose acquisition company formed by Niel as well as longtime Casino partner Moez-Alexandre Zouari and banker Matthieu Pigasse. They their blank-check firm with InVivo Retail last year.

Casino will be able to fill surplus space in its stores with Teract’s brands, which also include the Boulangerie Louise bakery chain. It is not alone in trying to find a solution to a surfeit of selling areas as grocery shopping shifts online. But it’s hard not to think this is another example of Jean-Charles Naouri, Casino chairman and chief executive officer, selling off the crown jewels in order to conserve cash and pay down debt.

While investors are right to question Casino’s and parent Rallye SA’s capital structures and heavy debt loads, they cannot fault Naouri’s instinct on how consumers want to shop — operating stores close to where people live, supplemented by online operations. Monoprix and Franprix remain quality retailers, with a strong position in Paris.

Given Casino’s debt levels — borrowings in the French business fell to €4.5 billion ($4.8 billion) at the end of 2022from €4.9 billion a year earlier, but still dwarf the company’s market value of €900 million — a tie-up or investment in the French food businesses had looked increasingly likely. Niel is opportunistic, so he obviously sees value in Casino’s assets, and given its leverage, he has the stronger hand.

Assuming the deal is completed, Casino will own 85% of the combined operations, with Teract having 15%.

But Casino’s stake could fall further. The combined operation is seeking €500 million, and Casino and Teract are talking to potential investors. It will also be listed, potentially enabling Casino to sell some of its stake to pay down debt.

All this makes Casino’s structure even more complex. The new entity will have to pay a dividend to its parent for Casino to benefit. This looks like the situation between Casino and parent Rallye. It is dependent on Casino’s cashflows to service its own debt, although Casino has not paid a dividend for several years.

Casino has €1.2 billion of bonds falling due next year. It said last week that it was exploring selling part of its remaining stake in Brazilian retailer Assai worth about $600 million, while it is offloading another €400 million of assets in France.

Assuming the deal with Niel and subsequent listing goes ahead, Casino will have another asset that it can tap to bring down its borrowings. But judging from investors’ and bondholders’ reactions, this may come at a heavy price.

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To contact the author of this story:

Andrea Felsted[email protected]

To contact the editor responsible for this story:

Nicole Torres[email protected]