Europe Flash: Casino throws a lifeline to key shareholder Rallye
Supermarket group Casino Guichard Perrachon [EPA:CO] has completed its EUR 1.5bn asset disposal programme with a sale and leaseback deal worth EUR 501m.
Casino announced the deal with Fortress Investment Group this morning (21 January) after completing a smaller transaction worth EUR 100m last week. Both deals are likely to be welcomed by investors amid concerns over leverage at Casino and its holding company parent Rallye [EPA:RAL].
Casino kicked off the EUR 1.5bn asset disposal in June, around the time investor scepticism over the financial condition of it and its parent company was at its most acute. The plan aimed to reduce net debt in Casino's French operating business by EUR 1bn: net debt in France was EUR 4bn at 30 September 2018 out of a group total net debt of EUR 5.4bn. Casino achieved its target through the sale and leaseback transaction with private equity fund Fortress. It involves the sale of 26 hypermarkets and supermarkets valued at EUR 501m. Casino will receive EUR 392m on completion, expected early in 2019, followed by a potential additional payment of EUR 150m, depending on the unit’s performance.
While the Fortress transaction is important in allowing Casino to hit its deleveraging target, a smaller transaction announced on Friday could prove equally significant for different reasons. Casino sold six hypermarkets to co-operative rival E Leclerc for EUR 101m, a deal which valued the stores at 0.7x sales. That’s a valuation multiple which is far above Casino’s stock market EV/sales valuation of 0.2x. The supermarkets were also some of the worst performing in Casino’s network, according to the statement, with annual sales of EUR 150m and trading losses of EUR 8m. If rivals are willing to buy up some of Casino’s worst performing stores for 0.7x sales, what price might they be willing to pay for its better performing assets? At face value, the transaction implies Casino’s current 0.2x EV/sales multiple is too low.
The latter transaction could also help out 51% shareholder Rallye. Rallye’s debt is worth more than the value of its holding in Casino. The only way Rallye is able to avoid breaching a key bond covenant is by arguing that Casino’s market value significantly understates the supermarket’s fair value. Transactions like the one Casino completed on Friday could help to do that, providing a lifeline to its beleaguered parent.