Casino's Accounting Gets New Attack From Short Seller Block

  • Analyst says Muddy Waters is upping the ante ahead of results
  • French retailer's stock has rebounded since mid-December

Casino Guichard-Perrachon came under renewed fire from short seller Carson Block after a surge in the French retailer’s stock last week erased most of the decline since he disclosed his position in December.

Casino inflated 2014 earnings by 203 million euros ($224 million) by claiming more profit from real-estate transactions than it should have, Block’s firm Muddy Waters LLC said in a statement Monday, increasing its original estimate of 140 million euros. Block also said accounting and governance problems in Brazil appear bigger than the retailer has disclosed. Shares of Casino, which is scheduled to report earnings Wednesday, fell 1.5 percent to 47.85 euros as of 10:46 a.m. in Paris.

“This again ups the ante,” wrote John Kershaw, an analyst at Exane BNP Paribas. He said the alleged misstatement is “negative if correct, but crucially, would only really be a significant negative if replicated in current and future financial years.”

Thai Divestment

Muddy Waters began its attack late last year, contending that Casino is using financial engineering to mask a sharply deteriorating core business and that shareholder Rallye has too much debt. Casino has rejected the claims, saying it has a solid financial structure and that it may take legal action. The retailer last month agreed to sell its controlling stake in Thai supermarket chain Big C Supercenter Pcl for 3.1 billion euros ($3.4 billion) to improve its finances.

A spokeswoman for Casino didn’t immediately return a voice mail and an e-mail seeking comment on Block’s latest claims.

Block’s bet against Casino hasn’t paid off yet. The stock is up about 4 percent since Dec. 15, the date on which, according to a regulatory filing, he first he took a short position. The stock rallied 19 percent last week.

“Casino’s announced sale of its crown jewel stake in BigC Thailand validates our thesis that the company is hollowing itself out in order to sustain the debt load largely held at the parent level and at Rallye,” Muddy Waters said.

Block also said Muddy Waters hired a former CIA polygrapher to analyze Casino Chief Financial Officer Antoine Giscard D’Estaing’s comments on recent conference calls.

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