Photographer: Fabrice Dimier/Bloomberg

French Grocer Casino Rejects Block's Claims as Quarrel Escalates

French supermarket operator Casino Guichard-Perrachon SA rejected a claim that it uses complex accounting to mask poor results, saying it has a “solid” financial structure and enough liquidity to “comfortably” cover debt payments.

In a statement Monday, the retailer dismissed allegations made last week by Carson Block’s Muddy Waters LLC. The short-seller said Thursday Casino is using financial engineering to mask a sharply deteriorating core business, sending the stock down the most since 1999.

“Casino strongly rejects all arguments put forward by Muddy Waters Capital,” the Saint-Etienne, France-based retailer said. “The group remains confident on its business outlook and its capacity to create value for all stakeholders.”

Block said Casino’s debt burden is dangerously high and only being managed for the short term. Casino has said it may take legal action.

Casino shares fell 0.3 percent to 43.88 euros at 10:25 a.m. in Paris. They dropped to as low as 38.75 euros last week after Muddy Waters published its report. Block said the stock is worth as little as 6.91 euros.

Improving Margins

Countering Block’s charge that the grocer is in poor health, Casino said low prices at its hypermarkets and discount stores in France, where it gets about 40 percent of sales, are winning back shoppers and should help generate a strong rebound in profitability in the second half. Margins will improve from next year, Casino said, forecasting domestic earnings before interest and tax of more than 500 million euros ($543.5 million) in 2016.

The retailer said it has delivered on its deleveraging plans over the past decade. A recent decision to sell assets in Vietnam, Thailand and Colombia to cut debt by more than 2 billion euros “is designed to deliver long-term shareholder value,” while it has enough cash to cover debt repayments beyond 2017.

Free cash flow this year in France is expected to fully cover financial expenses as well as dividends, Casino said, adding the measure will exceed 200 million euros in 2016. Muddy Waters estimated that Casino France’s free cash flow is approximately zero at present.

“This is a solid response from Casino, pointing out where Muddy Waters has misrepresented the company and providing some good additional color and guidance,” said Bruno Monteyne, an analyst at Sanford C. Bernstein. “We reiterate our view that the Muddy Waters report includes nothing that was not already understood about Casino.”

Block cut his short position to 0.66 percent of Casino’s shares on Dec. 17 from 0.92 percent, according to filings made with the French market regulator.

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