MercoPress. South Atlantic News Agency

Brazilian government conditions support for major retail chain merger

French giants Casino and Carrefour fighting for the Brazilian market

BNDES bank will not put up the 2.4 billion US dollars it pledged for the merger of Brazil's biggest retailers, Grupo Pao de Acucar and France's Carrefour, unless France’s Casino is on board, bank president Luciano Coutinho said in a local magazine.

Coutinho told Brazil's weekly Veja that “without agreement, the deal is off,” a statement which underscores a cooling of the bank's and the government's enthusiasm toward the mega-deal that could create a retail giant with revenues of 65 billion Real equivalent to 42 billion USD annually.

Casino is the controlling shareholder of Pao de Acucar, but Brazilian tycoon Abilio Diniz remains the chairman, as well as a major stakeholder, of the company through a partnership agreement with the French retailer struck half a decade ago.

Casino has been ice-cold toward the deal that would make it a minority stakeholder in a company controlled by its arch rival Carrefour and it has started arbitration proceedings against Diniz for allegedly negotiating the deal without informing it.

“Without an agreement between Pao de Acucar and Casino, the BNDES will not enter into the deal,” Coutinho said in the Veja interview.

Although he said that he still believes in the merits of the merger, Coutinho's statements indicate a more cautious official government position on the deal than earlier in the week, when the proposal was praised as a way to increase the sale of Brazilian goods abroad.

The deal fits the mould of the BNDES' drive to create national corporations that have the scale to compete internationally. The bank's financing helped JBS go from being an obscure meatpacker in the backwaters of Brazil's interior to the world's largest integrated meat company in little more than five years.

But local media, opposition lawmakers and analysts jumped all over the Pao de Acucar-Carrefour proposal, questioning nearly every argument that the government and Diniz put forth as merits for the deal.

“Our proposal is to finance national leaders among Brazilian companies,” Coutinho said. “This is a basic condition for us to participate in the project. But it's too early to speak of the details of the contract. We are still in the preliminary stages”.

Last week Casino announced that its Colombian retailing branch, Exito had signed a share purchase agreement for the acquisition of Casino' majority stakes in Uruguay’s main supermarket chain Disco and Devoto in an operation involving 746 million US dollars.

Exito also announced its intention to launch a share offering in Colombia of up to 1.4 billion US dollars. With consolidated sales of 770 million US dollars expected in 2011, Disco and Devoto operate 53 stores in Uruguay, including 1 Géant hypermarket, 28 Disco and 24 Devoto supermarkets for a total sales area of 73,900 sqm. The two banners are leaders in the modern food distribution market in Uruguay with a market share twice larger than the next competitor.