Casino Soars as Rallye Shares Plummet Following Bankruptcy Protection

   By Cristina Roca and Max Bernhard 
 

--Shares in Casino shot up after Rallye, its majority shareholder, enters bankruptcy-protection proceedings

--Rallye shares plummet after it enters court-supervised proceedings

--Rallye depends on the free cash that the French retailer generates in order to service its debt, though payments will be suspended during the proceedings

--Casino said the proceedings don't relate to its operations and backed its guidance

Shares in Casino Guichard-Perrachon SA (CO.FR) traded sharply higher Friday after the company said late Thursday that it isn't part of safeguard proceedings relating to its majority-shareholder Rallye SA (RAL.FR).

Rallye said late Thursday that it and its subsidiaries Cobivia, HMB, as well as their owners Fonciere Euris, Finatis and Euris, have entered into bankruptcy protection in France. The so-called safeguard proceedings allow debtors that are still solvent but face insurmountable difficulties to be restructured under a court's supervision. Shares in Rallye sank following the announcement.

"These procedures do no relate to Casino group, nor its operations, nor its employees, and do not impact the ongoing execution of its strategic plan," Casino said. The French supermarket said it has no operational ties with Rallye.

Casino on Friday backed its 2019 guidance.

At 0814 GMT, shares in Casino traded 16% higher at EUR32.40. Shares in Rallye were down 54% at EUR3.50.

Bryan Garnier analyst Clement Genelot said he saw a short squeeze on Casino's shares as likely, noting that 20% of Casino's total capital used to be shorted. Rallye's move to start safeguard proceedings is an effort to short-circuit short sellers, Deutsche Bank analyst Maxime Mallet said.

Rallye said Thursday that "following the persistent and massive speculative attacks against the group's securities," the opening of these proceedings will improve the companies' debt profile in a stable environment.

Speaking to investors on Friday morning, Casino's Chief Financial Officer David Lubek "was keen to rebuff the link between [Casino's] (very generous) dividend policy and the Rallye liquidity needs, but at the same time seemed to suggest that this policy may now be reviewed," Jefferies analyst James Grzinic said. Casino almost single-handedly generates the cash that supports the debt of the constellation of companies owning it, Jefferies noted.

Bryan Garnier's Mr. Genelot believes Casino may lower its dividend payout ratio, at least while its parent company is under safeguard proceedings. Rallye is temporarily protected from repaying its liabilities, Mr. Genelot noted.

Rallye said that as of December 31, 2018 it had racked up net financial debt of 2.9 billion euros ($3.2 billion), while its owners Fonciere Euris, Finatis and Euris had combined debt of nearly EUR400 million. Part of this debt is subject to pledge over Casino, Rallye, Fonciere Euris, or Finatis shares. Rallye holds 51.7% of Casino shares and 61% of voting rights.

"Rallye and its subsidiaries have...pledged nearly all of their shares," it said.

The holding's shares were suspended from the Euronext Paris exchange Thursdau after hitting an all-time low on Wednesday. Shares in Casino were also halted during the course of the morning Thursday following a sharp fall.

Casino has been beset by a string of bad news in recent months, including rating downgrades by Standard & Poor's and Moody's. On Wednesday the retailer confirmed that its headquarters were investigated by European Commission officials as part of a probe into suspected violations of antitrust rules.

Casino is currently undertaking an asset-disposal plan, and HSBC analysts say both the shrinking of Casino's business and its margin-maximization strategy could undermine the French group's long-term strategic position.

Write to Cristina Roca at [e-mail]; @_cristinaroca, Max Bernhard at [e-mail]; @mxbernhard

(END) Dow Jones Newswires

May 24, 2019 05:47 ET (09:47 GMT)

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