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15th of October 2018

Economy



Carrefour adds to the intrigue around a rival French grocer

IS IT possible to reject a takeover bid that has not been made? Such ontological questions rarely bother mergers-and-acquisitions bankers. France is different. At around midnight on September 23rd Casino, a supermarket chain, said its board of directors had unanimously rejected a hostile takeover attempt by Carrefour, a bigger rival. By sunrise, the supposed bidder insisted it had made no such offer. Investors have been left scratching their heads in the manner of undergraduates grappling with the tenets of existentialism.

Whether a merger is in the works remains unclear. Carrefour might have sniffed an opportunity in the travails of Casino, part of the empire of Jean-Charles Naouri, a well-connected former civil servant and mathematician. His shops, which include the upscale Monoprix chain, are well run. But the firm is heavily indebted, and sits at the bottom of a cascade of listed firms also saddled with loans. Concerns over the health of its balance-sheet have prompted Casino’s shares to drop by nearly 30% since the start of the year.

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On September 3rd S&P Global, a ratings agency, cut Casino’s credit rating further into junk territory when a key subsidiary was late filing its accounts. Analysts have been struggling for months to make sense of its books. Casino denies impropriety and has blamed the share-price drop on hedge funds betting on the downfall of one of the pillars of the Naouri empire.

Markets have also focused on Rallye, another listed firm run by Mr Naouri, which owns just over half of Casino. A large part of its borrowings, which reached €2.9bn ($3.4bn) in June, use its shareholding in Casino as collateral. Given the share-price plunge, the collateral available shrank, increasing pressure on Casino to remit money to Rallye lest it default. That in turn would have harmed Casino’s prospects, so causing its share price to fall further, and so prompting Rallye to ask for more cash from Casino, and so on.

The doom loop was disrupted when Rallye said on September 16th that its banks had offered it €500m of credit not secured on Casino shares. That has bought the firm some breathing room, though bonds of Casino and Rallye are still trading at levels that suggest some risk of default.

Talk of a merger with Carrefour, the world’s biggest bricks-and-mortar retailer after Walmart, may therefore be a welcome distraction. Carrefour has problems too, however. Although its balance-sheet is strong in comparison with Casino’s, it slumped to a net loss last year as a result of a restructuring prompted by a prolonged spell in the doldrums. The group has relied for too long on the fading hypermarket model it pioneered in the 1960s. Only under its newish chief executive, Alexandre Bompard, has it made the right kind of noises about trimming its large shops and investing in online ordering, as Casino has already done.

Both sides do agree that their bosses met and even discussed what a tie-up between Casino and Carrefour might look like. But whether a bid exists now, or will exist in future, is as much a question for regulators as for philosophers and investment bankers. Observers note that competition authorities would surely balk at giving a single group around a third of the grocery market and around three-quarters of all convenience stores. In July, France’s Autorité de la Concurrence started investigating a series of purchasing alliances between grocers, such as that between Carrefour and Système U. For Carrefour and Casino, too, the real world may intrude.

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