Casino - Closer to the crossroads
All,
Please find our unchanged analysis here.
The counter proposal from Křetínský has shown the possibility of an alternative approach, demonstrating that Naouri does not have it all within his control. Nevertheless, we are narrowing down the paths Casino are likely to take in the coming months. Even if we struggle to see Naouri requesting the opening if it endangers his control of the group, the solicitation of consents suggests that Casino group are likely to use a process to achieve their aims. Although open to debate, we expect the new merged entity, with Teract to be formulated with Casino Group initially holding a majority stake. We have also explored the possibility of some/all of the senior debt travelling to the new entity, but the pendulum has swung in favour of the scenario in which Casino Group will try to maximise their equity stake in the merged entity, and therefore will leave the Term Loan B at CGP, where it can be used to control the Sauvegarde. We expect the RCF and Monoprix lines will travel.
Investment Considerations:
- We are reconsidering our positioning. We had originally taken a 2.0% of NAV in each of the 24s and the 27s on the expectation that Naouri would not seek to enter Sauvegarde in the near term, and instead buy himself the option of better market conditions by foregoing the discount on the 2024s. However, the reality is the timeframe has accelerated and the conditions for 2024 bonds to be treated differently are diminishing. There remains the possibility that neither the merger nor the new equity proposal does not come to fruition and Casino continue to play for Tim.
Announcements:
- Two announcements today from Casino that offer some insight into the potential next steps for the Casino Group. The announcement re: the extension of purchasing alliances with Intermarché is relatively straightforward, with our initial thoughts showing that the newly merged entity will remain controlled by Casino Group. Additionally, Teract and Casino appear to have confirmed €300m of the €500m new money requirement will be provided by the controlling shareholders of Teract and Intermarché, namely InVivo and Les Mousquetaires.
However, the second statement concerning Křetínsky’s new equity raise highlights that Naouri may not be in control of his destiny. The €1.1bn equity raise would dilute Rallye’s equity stake substantially, removing Rallye/Naouri as a controlling shareholder.
- The appointment of any Concillateurs is the prerogative of Casino management, namely the CEO (JC Naouri) which highlights the problem with the equity raise. The equity raise is not in Naouri’s interest, and it is difficult to see a way forward with it.
Which way forward?
- We have previously tried to outline the various potential paths forward for Naouri/Casino within the various constraints of the bonds.
- We view the most likely option to centre around a newly merged entity, majority controlled by Casino. In this scenario, we see the TLB remaining mostly at CGP.
- In order not to lose control in a CGP Sauvegarde, Naouri might be looking to shift control outside of CGP - via Teract or otherwise even before committing CGP to a Sauvegarde. In this case, he might find it useful to transfer the debt to the merged entity to reduce its NAV to a minimum.
- We struggle to see Naouri request a Sauvegarde if he risks losing control. On our projections he has sufficient cash to continue trading, so he is under no obligation to bring the situation to a head right now / can hold out for better options. Moreover, once in Sauvegarde Accélérée, the bonds might feel they need neither Naouri nor Kretinsky.
- There are several questions that we are in the process of discussing with reputable law firms, including: J-Crew blockers, restrictive covenants, merger covenants, ways to open Sauvegarde, risk control for France Retail under Sauvegarde Accélérée, x-class cram down of bonds etc.
Purchasing Partnership:
- Initial takeaway from the announcement of the potential extension of the Purchasing Partnership with Groupement Les Mousquetaires (Intermarché/Netto) and Casino is the assertion that Casino Group will be the controlling shareholder in the newly formed merged entity. We have toyed with the potential for the newly merged entity to be controlled by either InVivo or the providers of the €500m equity raise.
- Casino and ‘Les Mousquetaires are also considering further alliances, including purchasing private label food products, and both Teract and Les Mousquetaires having reciprocal access to supply the various entities.
- In addition, the newly merged entity may dispose of several stores, totalling a minimum of €1.bn of sales to ‘Les Mousquetaires over several years. These sales appear to be non-core geographical regions for Casino and would allow Intermarché to expand its national network.
New Equity at the Merged Entity:
- Separately from the new purchase alliances, Groupement Les Mousquetaires could become a minority shareholder in the newly merged entity.
- As referenced in the original statement re: the potential merger, both parties were in agreement that an additional €500m of new equity would be required to implement the strategic goals of the new entity.
- In this context, both Les Mousquetaires and InVivo are considering an investment of €300m in the new entity.
- Casino and Teract’s reference shareholders have started discussions with other potential investors to raise the additional €200m.
Counter Proposal from Křetínský:
- Casino Group also announced today that they have received a conditional letter of intent from EP Global Commerce (an entity controlled by Mr Daniel Křetínsky and linked with VESA equity, which owns 10% of Casino).
- The proposal is an equity raise of €1.1bn, which would be split with EP Global Commerce subscribing for €750m, Fimalac the opportunity to subscribe for €150m and the remaining €200m offered to existing Casino shareholders.
- Note: Fimalac is both a direct shareholder in Casino (2.6%) and holds as security for loans made at Rallye a further 11.6%.
- The new equity raise would be subject to several conditions, but mainly the substantial reduction of unsecured debt by way of cash repurchases and debt for equity swaps. In addition, a waiver would be required from existing secured creditors relating to change of control provisions. Other conditions are mainly regulatory.
Appointment of Concillateurs/Consent required:
- To progress with either the equity raise and/or potential merger with Teract, Casino is considering the appointment of conciliateurs to provide a framework for these discussions.
- However, to progress this, Casino requires consent from its lenders and is seeking consent from its lenders, notably the RCF, the Term Loan B, Monoprix facilities and the state guarantee loan to Cdiscount.
- In addition, Casino has launched a consent solicitation from certain bondholders (January 2026, April 2027 and Quantrim notes) so that the appointment of conciliators would not constitute an event of default.
Timing:
- The consent solicitation will expire on 19th May (subject to extensions by Casino Group).
- Concerning the potential merger with Teract, one of the statements reconfirms that the project remains conditional but with the expected timing to be prior end of Q2 2023.
Happy to discuss,
Tomás
E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk