Analysts sceptical as Casino opens talks with Teract

Teract SA

02/02/2023 18:50

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      No synergy in potential French deal with Teract - Bryan
Garnier
    

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      Casino has massive debt, with large bond maturities due in
2024
    

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      Any deal would be structured to alleviate Casino's
debt-source 
    

  
    By Mathieu Rosemain and Dominique Vidalon
       PARIS, Feb 2 (Reuters) - Casino's  CASP.PA  preliminary
talks with Teract  TRACT.PA  to combine their French retail
activities perplexes some analysts, who say a deal wouldn't
address the supermarket group's urgent need to slash debt.
     Casino, controlled by 73-year-old Jean-Charles Naouri,
faces a wall of debt, starting with about 1.3 billion euros
($1.42 billion) of secured and unsecured bonds due next year for
French activities, according to credit rating firm S&P. It
recently cut its rating for Casino, highlighting the company's
need "to fix the current cash burn."    
    Naouri has pledged to sell 4.5 billion euros' worth of
assets at Casino - owner of the Monoprix, Franprix and Naturalia
brands - by the end of this year, 90% of which had already been
completed by last October. 
    It is also offloading part of its stake in Brazilian
cash-and-carry chain Assai  ASAI3.SA . 
    But a possible deal between Teract and Casino, which could
lead to the combination of the two groups' retail activities in
France in a single entity, doesn't resolve the operational
challenges faced by Casino in France, several analysts said.
     Teract sells gardening products, as well as pet supplies,
and counts Jardiland, Gamm Vert, Noa and Delbard among its
brands. 
    "A potential merger with Teract would bring no new money to
Casino while operational synergies look minimal if not
inexistent to us," said Clement Genelot, an analyst at Bryan,
Garnier & Co.
    Teract's share price jumped by more than 6% on Wednesday
after the two companies confirmed they had begun exploratory
discussions, and by another 6% on Thursday.
    Casino's shares rose modestly by 1% or so on both days, with
analysts saying they need more details on how any deal would be
structured.
    "The deal will be structured in such a way that Casino can
reduce its debt," a source close to the current discussions
said, without elaborating. 
    Both groups declined to comment beyond their statements
issued on Wednesday.
    Genelot also questioned why Teract would engage in a deal.
    "We struggle to understand why Teract would accept to become
liable for Casino France Retail's massive net debt (estimated at
around 3.9 billion euros in our model at end 2022) through a
merger, especially if the LatAm stakes are
not included in the entity," Genelot said. 
    In its latest published results, Casino reported a net loss
for the first half of 2022. 
    "I don't see where the business rationale (for a deal) is,"
another analyst, requesting anonymity, said. 
    "But that wouldn't be the first time that a deal is made
without any business rationale." 
    Teract listed last August after being created a month
earlier by combining a shell company backed by billionaire
Xavier Niel, investment banker Matthieu Pigasse and businessman
Moez-Alexandre Zouari, with agribusiness group InVivo's retail
business.
    It generated consolidated revenue of 867 million euros in
2021, while Casino's retail activities generated 14.1 billion
euros in 2021 in France alone, or close to half of group sales. 
    Zouari and Nouari already have a business connection as
Zouari owns some Casino supermarkets in France that operate
under the Groupe Casino franchise. Zouari's family office didn't
immediately reply to a request seeking comment on the talks. 
($1 = 0.9161 euros)
 (Reporting by by Dominique Vidalon and Mathieu Rosemain;
Editing by Susan Fenton)
 ((Mathieu.Rosemain@thomsonreuters.com; +33 1 8098 1239; Reuters
Messaging: mathieu.rosemain.thomsonreuters.com@reuters.net;
Twitter: https://twitter.com/MathieuRosemain))