Casino Serves Controlling Owner Not Investors, Carson Block Says

Short seller Carson Block said Casino Guichard-Perrachon SA’s decision to sell prime assets to cut debt vindicates his assessment that the French grocer exists to serve its controlling shareholder rather than ordinary investors.

“What Casino should be doing to ensure sustainability is -- rather than selling its best assets -- it should stop paying the dividends,” Block said Monday in a phone interview. Casino’s “primary function these days seems to be to service the debt on top of it,” he said, calling Casino’s holding structure “parasitic.”

“That is the principal problem for Casino investors,” Block said.

Casino Chief Executive Officer Jean-Charles Naouri is disposing of businesses in Asia and Latin America to cut debt. On Monday, the company completed the sale of its stake in Thailand’s Big C Supercenter for 3.1 billion euros ($3.5 billion), reducing its borrowings by 3.3 billion euros.

Block, who began his attack on Casino in December, made the remarks after Standard & Poor’s cut Casino’s rating to junk on Monday. The downgrade reflects controlling shareholder Rallye SA’s debt load, which relies on dividend payments from Casino to be serviced even in periods of stress and weak operating performance, S&P said. Casino’s profit fell 35 percent last year.

Block’s Muddy Waters contends that Casino is using financial engineering to mask a deterioration of its core retail business and that Rallye has too much debt -- allegations that Casino has dismissed. The grocer is worth at least 60 percent less than its current share price, Block said Monday. The stock closed up 1.3 percent at 50 euros in Paris, reversing an earlier decline.

“Right now, if you’re an optimist, then you’re thinking that Casino is playing for time and that time is on its side and that things will turn round in Brazil and in its core France operation sufficiently to make this company more valuable,” Block said.

“Regardless, I do not see any scenario under which this company could be worth close to 50 euros a share” in the next two years, he said.

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