Parent of French retail giant on the ropes after hedge fund fight

Paris (AFP) –


The parent company of French grocery chain Casino insisted Friday that there would be no consequences for some of the country's best-known supermarket brands after it filed for bankrupcy protection following a long battle with hedge funds.

Rallye, whose subsidiary Casino also owns top French high-street supermarket brands like Monoprix and Franprix, said late Thursday that it had sought bankruptcy protection to renegotiate its three billion-euro ($3.35 billion) debt load with creditors.

Following trading suspensions the day earlier, Rallye shares lost almost half their value on Friday, plunging 42 percent on the Paris stock exchange to trade at 3.20 euros.

But Rallye said Friday that Casino as well as sports chain Go Sport, which it also owns, "were not concerned" by the proceedings, which involved only the majority shareholder.

As a consequence, Casino shares surged by more than 9.2 percent on the Paris stock exchange to 30.46 euros.

But since March, Casino shares are still down more than 30 percent.

- 'Re-profile debts' -

Both the parent company and its subsidiary have been under attack on the markets by hedge funds who regard an opaque and complex shareholder structure as a major weakness.

Funds adopted short-selling positions on the shares, effectively betting the share price would fall.

Rallye owns 51.7 percent of Casino, which is controlled through a complex holding structure by French businessman Jean-Charles Naouri.

Casino, which employs 220,000 people worldwide, also has outlets in Colombia, Argentina, Uruguay and Brazil as well as its French businesses.

Rallye said that "following the persistent and massive speculative attacks" against its shares, the bankruptcy protection would "ensure the integrity of the group and improve their debt profile in a stable environment."

"It is key for the companies to have time to re-profile their debts within the secured framework of the safeguard proceeding," Rallye said.

It said the safeguard proceedings would initially take six months, and potentially last as long as 18 months.

- 'Resounding vindication' -

Analysts said that for all the assurances from Rallye, the bankruptcy protection could result in major changes for Casino's shareholder structure and Naouri's control.

"There are fears about the structure of Rallye and especially worries about negotiations with creditors and the fact that they could become shareholders," said Clement Genelot of investment bank Bryan Garnier and Co.

"If the creditors demand that their debt is converted into shares there is a risk that in the end Mr Naouri will lose control and have hands that are much less free," he added.

One of Naouri's most implacable foes over the last years has been the activist US investment firm Muddy Waters, known for its in-depth investigations into complex ownership structures and operations.

In December 2015 it accused Naouri of allowing Casino to be "hollowed out to support an unsustainable debt burden in the holding companies above it" and misleading investors about its finances.

Rallye denied the claims.

Muddy Waters said in a statement Friday that the bankruptcy protection "marks the beginning of the end for this financing structure, which has been a parasite on Casino for years."

"It is also a resounding vindication of the warnings we sounded in 2015. However, we do not celebrate."

Equity consultancy Alphavalue said the ownership structure had become impractical, and ideally Casino would now be able to free itself from the control of its parent.

"The crisis that the hedge funds wanted has now arrived and this can perhaps help to solve a situation that should have been solved several years ago," it said.