CRRFY Carrefour SA (PK)

By Nick Kostov 

French grocer Carrefour SA on Monday denied claims from rival Casino Guichard-Perrachon SA that it had approached its smaller competitor about a possible merger to create one of the world's largest retail giants.

Casino said Carrefour had contacted the company in recent days about a possible deal but that its board had unanimously rejected the approach and would now take all necessary action to defend its interests.

"Casino thus intends to take all necessary action to defend the group's corporate interest, and its structural integrity, a key factor for the success of its strategy," the company said.

However, Carrefour denied soliciting Casino, accusing its rival of "untimely, misleading and groundless communications." Carrefour said it was "surprised that Casino's board of directors would have been submitted a merger proposal that does not exist."

In response, a spokesman for Casino said it stood behind "every word and every comma" of its press release. "There was a meeting between the two CEOs on the morning of September 12 at 8:30 a.m. in Paris. Both sides then hired lawyers to advise them and they also talked."

A Carrefour spokesman confirmed the meeting, but said it was initiated by Casino.

"The Carrefour group has never solicited Casino and has never initiated any merger project," the spokesman said. "Carrefour is determined to put an end to these unacceptable insinuations."

Both Casino and Carrefour have struggled to preserve once reliable profit margins in France's cutthroat grocery market amid competition from online shopping, discounters and meal-delivery services. Both also have lately been investing heavily in their e-commerce offerings to ward off mounting competition from Amazon.com Inc. and other rivals.

A Casino-Carrefour merger would face regulatory issues in both Brazil and France, analysts at Jefferies said in a note Monday. Together, the two companies would have a market share of more than 50% of modern retail in Brazil, which excludes small local convenience stores. In France that proportion would be almost a third, according to the U.S. bank.

"We await further clarifications before concluding how these extraordinary events have come to be," Jefferies said.

Last summer, Carrefour named Alexandre Bompard as chief executive, tapping someone who had gone toe-to-toe with Amazon.com Inc. when he was at the helm of book, music and electronics retailer Fnac Darty to help close its e-commerce gap. Mr. Bompard announced a five-year growth strategy in January that included a pledge to invest EUR2.8 billion ($3.28 billion) in digital commerce by 2022, and a target of EUR5 billion in sales in food e-commerce in five years -- a sixfold increase over last year.

Casino's share price has fallen 29% since the beginning of 2018, in part because of investor concerns about the company's debt. Casino also has been a target of hedge funds who have shorted the stock. Earlier this month, Casino's debt rating was cut further into junk territory by ratings firm Standard & Poor's, who cited the drop in share price and the widening of credit spreads at both Casino and its holding company Rallye.

On Sunday, Casino "acknowledged the barriers, in France and in Brazil, to a combination with Carrefour, especially in terms of competition and employment."

Casino, which reported net sales of EUR37.8 billion in 2017, is a household name in France and owns the GPA brand in Brazil, which counts over 100,000 employees and a network of over 1,100 stores. The company, with a market value of EUR4 billion, was founded in 1898 by Geoffroy Guichard. Mr. Naouri initially bought a minority stake alongside the founding family, and then converted it to a majority stake in 1998.

During the following years, he took small stakes in struggling companies. But all the acquisitions left Casino heavily in debt. Casino launched a deleveraging plan worth about EUR4 billion in 2016, which included selling its stake in a Thai supermarket as well as Vietnam retail assets, following an attack from short seller Carson Block. His research firm Muddy Waters alleged Casino used accounting gimmicks and financial engineering to hide a sharply declining core business, which the company has denied.

Write to Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

September 24, 2018 09:44 ET (13:44 GMT)

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