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Carrefour Receives Proposal for Brazil Partnership With CBD

The plan would create Brazil’s largest retail player, but is likely to raise objections from rival Casino.

PARIS — Carrefour SA has received a proposal for a strategic partnership that would create Brazil’s largest retailer by merging its assets in that South American country with those of Brazilian retail group Companhia Brasileira de Distribuiçao.

This story first appeared in the June 29, 2011 issue of WWD.  Subscribe Today.

The announcement Tuesday puts an end to weeks of rumors of a planned linkup between Carrefour and CBD, which has strong ties to rival French supermarket operator Groupe Casino, owner of 37 percent of CBD’s capital. Casino shot back with a statement describing the plan as “manifestly hostile.”

Carrefour, the world’s second-largest retailer behind Wal-Mart Stores Inc., said it had been contacted with the proposal by Gama, a company owned by an investment fund managed by BTG Pactual, one of Brazil’s leading financial groups.

Gama said it would receive a capital injection of 2 billion euros, or $2.83 billion, from BTG Pactual and the Brazilian National Development Bank in addition to debt financing for 500 million euros, or $709.65 million. All dollar rates are calculated at current exchange rates.

Under the terms of the proposed deal, Gama would become a reference shareholder in Carrefour with an 11.7 percent stake, which could be topped up later with an additional 6 percent of its capital. It would be represented on the French retailer’s board of directors with two seats initially, including the vice chairman’s seat.

It would enter into a shareholders’ agreement and act in concert with Carrefour’s largest investor, Blue Capital, the investment consortium of LVMH Moët Hennessy Louis Vuitton chief Bernard Arnault and investment firm Colony Capital that holds 13.5 percent of Carrefour’s capital.

“Carrefour’s board of directors has been informed of the terms of this proposal and will review it in the coming days,” Carrefour stated. If completed, the transaction would lead to the creation of a player with estimated combined 2011 pro-forma turnover in excess of 30 billion euros, or $42.58 billion, it added.

Casino, which first made public the planned linkup last month, has been taking steps ever since to protect its position.

This includes filing a request for arbitration against the Diniz Group, its partner in Brazil’s top retailer, Pão de Açúcar, to demand that it respect the terms of a pact under which Casino has the right to become sole shareholder of CBD in 2012.

“This statement confirms that secret and illegal negotiations have been conducted and that they continue. Indeed, under the terms of the public agreement between Casino and [GPA chairman] Abílio Diniz, no negotiation concerning the future of CBD can take place without Casino’s involvement,” it said, adding that it will now examine its options.

The proposed Brazilian linkup would almost certainly boost Carrefour’s fortunes, but an ongoing legal battle with Casino risks detracting attention from the retailer’s efforts to turn around its struggling hypermarket business in France, its biggest market.

Ratings agency Fitch on Tuesday downgraded Carrefour’s long-term issuer default rating and senior unsecured rating to “BBB+” from “A-” in the wake of its recent announcements.

Shares in Carrefour closed up 3.7 percent at 27.44 euros, or $38.94, while Casino fell 5.6 percent to 62.20 euros, or $88.28.