Groupe Casino's preliminary talks with Teract to combine their French retail activities perplexes some analysts, who say a deal wouldn't address the supermarket group's urgent need to slash debt.
Casino, controlled by 73-year-old Jean-Charles Naouri, faces a wall of debt, starting with about €1.3 billion of secured and unsecured bonds due next year for French activities, according to credit rating firm S&P. It recently cut its rating for Casino, highlighting the company's need "to fix the current cash burn."
Naouri has pledged to sell €4.5 billion worth of assets at Casino - owner of the Monoprix, Franprix and Naturalia brands - by the end of this year, 90% of which had already been completed by last October.
It is also offloading part of its stake in Brazilian cash-and-carry chain Assaí.
But a possible deal between Teract and Casino, which could lead to the combination of the two groups' retail activities in France in a single entity, doesn't resolve the operational challenges faced by Casino in France, several analysts said.
Teract sells gardening products, as well as pet supplies, and counts Jardiland, Gamm Vert, Noa and Delbard among its brands.
"A potential merger with Teract would bring no new money to Casino while operational synergies look minimal if not inexistent to us," said Clement Genelot, an analyst at Bryan, Garnier & Co.
Teract's share price jumped by more than 6% on Wednesday after the two companies confirmed they had begun exploratory discussions, and by another 6% on Thursday.
Casino's shares rose modestly by 1% or so on both days, with analysts saying they need more details on how any deal would be structured.
"The deal will be structured in such a way that Casino can reduce its debt," a source close to the current discussions said, without elaborating.
Both groups declined to comment beyond their statements issued on Wednesday.
Benefits For Teract
Genelot also questioned why Teract would engage in a deal.
"We struggle to understand why Teract would accept to become liable for Casino France Retail's massive net debt (estimated at around €3.9 billion in our model at end 2022) through a merger, especially if the LatAm stakes are not included in the entity," Genelot said.
In its latest published results, Casino reported a net loss for the first half of 2022.
"I don't see where the business rationale (for a deal) is," another analyst, requesting anonymity, said.
"But that wouldn't be the first time that a deal is made without any business rationale."
Teract listed last August after being created a month earlier by combining a shell company backed by billionaire Xavier Niel, investment banker Matthieu Pigasse and businessman Moez-Alexandre Zouari, with agribusiness group InVivo's retail business.
It generated consolidated revenue of €867 million in 2021, while Casino's retail activities generated €14.1 billion in 2021 in France alone, or close to half of group sales.
Zouari and Nouari already have a business connection as Zouari owns some Casino supermarkets in France that operate under the Groupe Casino franchise. Zouari's family office didn't immediately reply to a request seeking comment on the talks.
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