Billionaire Diniz Ceding Brazil Retailer as Shares Fall

Billionaire Abilio Diniz
Billionaire Abilio Diniz is handing control of Brazil’s biggest retailer to Casino Guichard-Perrachon SA as the stock posts the biggest losses among peers in Sao Paulo. Photographer: Fabio Guinalz/FotoArena/LatinContent/Getty Images

Billionaire Abilio Diniz is handing control of Brazil’s biggest retailer to Casino Guichard-Perrachon SA as the stock posts the biggest losses among peers in Sao Paulo.

The ownership change is spurring concern that Cia. Brasileira de Distribuicao Grupo Pao de Acucar’s new management won’t be able to sustain sales growth at the Brazilian company, where 2011 revenue rose more than twice as fast as that of Saint-Etienne, France-based Casino, said Sandra Peres, an analyst at Coinvalores Corretora de Valores.

“Pao de Acucar is coming from a very significant growth period,” Peres, who has a hold rating on the stock, said in an interview. “The shares have probably priced in Casino’s entrance. Now, the second step is who they are going to keep in management, how the operations will be going forward.”

Pao de Acucar shares are the worst performer in the MSCI Brazil Consumer Staples Index in the past month, dropping 8.9 percent as the gauge fell 2 percent. Brazil’s benchmark Bovespa index is up 0.7 percent in that period. Pao de Acucar rose 2 percent to 75 reais today in Sao Paulo after Folha de S.Paulo reported that Casino will move to list Pao de Acucar on the Brazilian exchange’s Novo Mercado.

Casino became the sole controller of Pao de Acucar today when the presidency of the holding company passed to Casino Chairman and Chief Executive Officer Jean Charles Naouri. The transfer stems from an agreement signed between the French retailer and Diniz in 1999 and amended in 2005.

Board Members

Pao de Acucar shareholders approved three board members appointed by Casino today at a meeting.

Pao de Acucar revenue rose 45 percent last year, compared with an 18 percent gain for Casino, according to data compiled by Bloomberg. The Brazilian company’s sales may increase 13 percent this year, according to the average estimate of analysts surveyed by Bloomberg, while Casino’s revenue is forecast to grow 19 percent.

Investors are speculating that 75-year-old Diniz won’t take to his diminished role as chairman and will decide to leave the company that his father, a Portuguese immigrant, founded as a bakery in 1948, said Daniella Maia, the chief analyst at Ativa Corretora in Rio de Janeiro.

Management Style

“What will really impact the minority shareholders is if Diniz leaves for good,” Maia said. “His management style and ability to understand the retail sector added value.”

Diniz has the right to continue being Pao de Acucar’s chairman “as long as the company delivers good results and he is in good mental and physical health,” according to the shareholders’ agreement.

Pao de Acucar gained 12 percent in the 12 months through yesterday, as Casino slumped 2.5 percent. The Brazilian retailer has almost doubled in the past five years, as Casino fell 9.8 percent.

The shares were the best performer on the MSCI Consumer Staples Index today after the Folha de S.Paulo report that Casino plans to convert Pao de Acucar’s preferred shares to common shares so it can list the stock on the Novo Mercado section, which has stricter requirements on disclosure and minority shareholders’ rights. Casino has no such plans at the moment, according to a press officer who asked not to be identified because of company policy.

Strategy Outlook

Some investors may also be betting that Pao de Acucar will continue to grow under new management.

“The company’s business should continue to be carried out in the same way, seeking to generate value for the shareholder,” said Leonardo Zanfelicio, an analyst at brokerage Concordia Corretora. “It looks like there won’t be any big strategy change, which has been pretty successful, and the group posted big growth in past years.”

Casino bought 24 percent of voting shares in Wilkes Participacoes SA, the entity that controls Pao de Acucar, in 1999. Six years later, the French company increased its stake to 34 percent in an agreement that gave it the option to buy control of the Brazilian company.

Last year, Diniz teamed up with billionaire banker Andre Esteves, the chief executive officer of Sao Paulo-based Banco BTG Pactual SA, as part of a proposal to merge Pao de Acucar with the Brazilian unit of Carrefour SA. The tie-up was to be financed in part by Brazil’s development bank, BNDES.

‘The Frenchman’

Casino described the proposal as hostile, filed a complaint against its Brazilian partner and denounced the move as illegal and in violation of the 2005 shareholders agreement. Casino increased its stake in the retailer to more than 40 percent and on May 15 announced its plan to exercise the option to become the sole controlling shareholder.

Diniz, a Catholic who attends Mass every week, said earlier that month that he was asking for God’s help to solve the dispute, O Estado de S. Paulo newspaper reported at the time.

“Help me solve the problem with the Frenchman,” Diniz said at an event in Sao Paulo, according to the newspaper.

Diniz declined to comment. Press officials at Pao de Acucar and Casino also declined to comment.

Dintz said today at the shareholders meeting that he will ask the company’s new management to “not forget that this is a family company.”

“My mission is the relentless defense of the group,” he said. “I will do everything in order to have our principles and values respected.”

Seven analysts surveyed by Bloomberg rate the stock hold, while 14 say buy and none recommend selling.

Casino is taking control of Brazil’s largest retailer as economic growth in France stalls. While Brazil is forecast to grow 2.3 percent this year, according to a central bank survey of economists published June 18, France’s economy may expand just 0.3 percent, according to economists surveyed by Bloomberg.

The French market “is very developed, without much space for growth,” Maia said. “Competitors are well-established.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE