Time and again, French businessman Jean-Charles Naouri has come up with manoeuvres to prevent his food retailer Casino and related group companies from collapsing under the weight of the heavy debts he has layered upon them.
The dramatic turns of the saga — from a war with short seller Muddy Waters in 2015 to the surprise court filing for creditor protection for four parent companies of Casino in 2019 — have long occupied and fascinated the Paris business world.
But crunch time is approaching for the 73-year-old executive who has been steadily selling off pieces of his retail empire to keep creditors at bay.
Both Casino and four companies through which Naouri controls the food retailer face a looming wall of debt repayments. Casino, which owns the Franprix and Monoprix chains, must pay back €1.2bn in debt maturities in 2024 and €1.8bn in 2025.
The entities that secured court protection — Rallye, Foncière Euris, Finatis and Euris — obtained a two-year extension on debt repayments because of Covid-19, but it runs out in February 2025 when €1.9bn is due at Rallye. With the clock running down, it is no surprise that Naouri, who was a maths whizz before going into business, is reaching again for his favourite tool — financial engineering.
This month Casino announced it was in early talks over a deal to combine its French food retail business with Teract, which owns a garden centre chain called Jardiland and a farmers’ co-operative called InVivo.
Formed last year, Teract is backed by some big names in French business, including billionaire Xavier Niel and investment banker Matthieu Pigasse. But the key person is really Teract chief executive Moez-Alexandre Zouari, a grocery entrepreneur who made his fortune as Casino’s biggest franchisee and who has a trusted relationship with Naouri going back decades.
No financial details were disclosed, but the companies sketched out the potential structure. Both retail operations would be combined into a new entity, which would be majority controlled by Casino and minority by Teract. Another new entity, in which Teract would have a majority stake and Casino a minority, would provide food and farm products to the retail arm.
In Paris, the news was greeted with bemusement in some quarters. “Totally baroque and classic Naouri,” said one banker. A credit analyst chuckled and said: “A very complex situation would become even more complex. Casino is not a food retailer, it’s a hedge fund trying to maximise the value of its assets.”
There are many questions that need answering before one can evaluate whether such a tie-up would be a good deal and for whom, and whether creditors and minority shareholders will suffer. How much debt will Naouri and Casino unload on the new company? Would the deal bring in fresh cash from Teract or via a share sale of some kind? What value would it imply for Casino’s French retail operation, which is its best asset?
Clément Genelot, an analyst at Bryan, Garnier & Co, warned in a note that Casino would “become an empty, debt-laden holding” company if the valuable French operations were separated out. The deal would just add another layer to the cascade of companies through which Naouri controls Casino.
Credit analysts at S&P reckon that Casino can cover its 2024 repayments by selling assets such as shares in its listed Latin American operations. But the 2025 deadlines for both Casino and Rallye will be much harder. Other Casino watchers believe the retailer will struggle to generate enough cash to funnel the required money to cover the debt repayments due at the other group companies.
The Teract deal may be Naouri’s best chance to avoid collapse in 2025, especially since selling to another French player such as Carrefour or Auchan looks very unlikely. But Zouari, Niel and Pigasse are also savvy financiers, just like Naouri, so they will not tether themselves to a stricken ship without making sure they have lifeboats. No doubt they would seek a deal that would allow them to scoop up assets at cut-rate prices if Casino or its parent companies were to go bust in the coming years. And they would probably demand governance protections, such as veto rights and co-control, to ensure that the new company is protected.
“This is opportunism for both sides,” said Genelot. Teract would snag a chunk of Casino’s attractive French business and Naouri would get more time to try to pull off another escape act.
This article has been amended to correct the spelling of the surname of Moez-Alexandre Zouari on second mention