CRRFY Carrefour SA (PK)

By Nick Kostov 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 25, 2018).

PARIS -- French retail giants Carrefour SA and Casino Guichard-Perrachon SA held preliminary talks to explore deals between the two companies earlier this month, according to people familiar with the matter.

But the talks quickly fell apart after Casino became convinced that Carrefour was using the discussions to prepare a hostile takeover of the company.

The dispute burst into public view late Sunday evening, when Casino published a press release saying Carrefour had contacted the company about a possible deal but that its board had unanimously rejected the approach. Carrefour fired back saying that it had made no such approach. Investors and analysts were baffled.

"We don't know what to make of the overnight news from France," Jefferies analysts wrote in a note.

In fact, Jean-Charles Naouri, Chairman and CEO of Casino, and Carrefour CEO Alexandre Bompard met on the morning of Sept. 12 in Paris for a meeting organized by Alain Minc, a well-known business consultant in France, people from both companies said. Following the meeting, lawyers for both sides began exploring possibilities to make a deal between the companies.

At that point, Casino asked Carrefour to sign a nondisclosure agreement that included a six-month ban on Carrefour buying Casino shares or assets, some of the people said. Carrefour considered the agreement too restrictive and declined to sign it at the end of last week. Instead, its lawyers proposed a shortened timeline for exploratory talks.

That set off alarm bells at Casino, which immediately convened a board meeting for Sunday. "It was the combination of the very short time frame for talks and their refusal to sign the NDA that made us understand they could launch a hostile takeover," a Casino spokesman said.

On Monday, each side was adamant that it had not instigated the talks. A Carrefour spokesman said it had "never solicited Casino" or "initiated any merger project," adding that it was "determined to put an end to these unacceptable insinuations."

A spokesman for Casino said it stood behind "every word and every comma" of its press release.

The public back and forth between two of Europe's listed giants is remarkable. It comes as Casino and Carrefour have struggled to preserve profit margins in France's cutthroat grocery market amid heightened competition from 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.

Casino in particular is struggling. Its share price has fallen 29% since the beginning of 2018, in part because of investor concerns about the company's debt. Earlier this month, Casino's debt rating was cut further into junk territory by ratings firm Standard & Poor's. The retailer also has been a target of hedge funds who have shorted the stock.

A Casino-Carrefour merger would face regulatory issues in both Brazil and France. 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.

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.

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

(END) Dow Jones Newswires

September 25, 2018 02:47 ET (06:47 GMT)

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