Casino Soars as Rallye Shares Plummet Following Bankruptcy Protection
May 24 2019 - 5:02AM
Dow Jones News
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 cristina.roca@dowjones.com;
@_cristinaroca, Max Bernhard at max.bernhard@dowjones.com;
@mxbernhard
(END) Dow Jones Newswires
May 24, 2019 05:47 ET (09:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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