Casino’s Jean-Charles Naouri hits back against the hedge funds
Chief of French supermarket group says his critics act ‘at their risk and peril’
Jean-Charles Naouri, the chief executive and controlling shareholder of Casino, is assailed by short sellers, in the middle of a bizarre non-takeover battle and alleging market manipulation.
“We have 18 hedge funds shorting us, which makes us probably the most shorted stock in Europe,” said Mr Naouri in a rare interview in his office in Paris. “Some funds are only six months old; some have only one short position, which is us; one has only five employees. And so it’s quite unusual.” He added: “They do it at their risk and peril.”
The intense and private French businessman was speaking to the Financial Times after his retail group announced a €565m sale and leaseback of a property portfolio, the latest move to shore up its financial position after its share price dropped by almost a third this year. It followed last month’s war of words when Casino said it had turned down a takeover approach that rival Carrefour denied making.
Short interest has risen recently to about 37 per cent of the company’s free float, according to IHS Markit, including prominent US short seller Muddy Waters, run by hedge fund manager Carson Block. Investors betting against the group point to the highly competitive environment in France and macroeconomic concerns in Brazil, as well as Casino’s complex group structure and high levels of debt in the holding company.
For his part, Mr Naouri claimed to have identified “a strange pattern” where the number of Casino’s shares on loan increases dramatically one day and then a few days later a negative analyst note is published, pushing the share price down. Then the hedge funds that have recently instigated short positions sell out for a profit. He said that this pattern had occurred at least four times in the past three months of trading. “This is something which is quite abnormal,” he said. “It raises questions.”
Deliberate in his language and precise in his numbers, Mr Naouri professed not to recall a famous story about his racing through a university entrance exam in mathematics and then playing with a yo-yo to the astonishment of his fellow students.
“I don’t want to be a prisoner of images,” he said. “Sometimes people describe me as a mathematician; for many years I had to defend myself against the fact that I had a lot of diplomas. Afterwards I was criticised for many years because I was civil servant and civil servants are supposed to have no common sense.”
“Carson Block says I’m a mathematician. If you’re supposed to be a genius at mathematics it becomes a handicap. I’m trying to do the best I can do for my job, which is to develop Casino, so all the other images are really simplistic and I try to go away from this.”
It is not just short sellers questioning Casino’s business model. Several research analysts have recently cut their price targets. In early September S&P cut Casino’s credit rating further into junk territory. And behind the scenes, credit analysts at banks including BNP Paribas and Goldman Sachs have held private conversations with investors in which they outline their bearish views on Casino. “We don’t have access to what they say,” Mr Naouri said. “And they talk about ethics! They are allowed to criticise us, which is normal, but what they write is secret.”
The roots of Casino’s current structure stretch back three decades to 1987 when Mr Naouri, a former civil servant and managing partner of Rothschild & Cie bank, established his own investment fund, Euris. In 1991 he used Euris to acquire Brittany-based retailer Rallye and then engineered a merger with another French retailer, Casino. Mr Naouri saw off a hostile takeover bid from retailer Promodès in 1997 to ensure Casino’s independence. Today Euris owns 59 per cent of Casino.
Mr Naouri controls Casino through three publicly listed investment holding companies, each with their own debts. The structure means that each company must send dividends up the chain to support the layer of debt above, a set-up that has been a cause for concern among some investors.
Casino has sought to address this, and the €565m real estate sale that Casino flagged on Monday is part of its plan to cut debt through a €1.5bn asset disposal plan that it announced in June, amid mounting pressure in the debt markets.
“We are on track with our programme,” said Mr Naouri. “We already have achieved half of this target,” adding that other non-core assets are under offer and could materialise before the end of the year. Its Brazilian subsidiary, Via Varejo, is also in negotiations with two potential buyers.
However, asset disposals will not include any of Casino’s core businesses in France that “we’ve worked on for many years”, said Mr Naouri, such as Monoprix, its upmarket urban brand; Franprix, its network of convenience stores; or Naturalia, its organic banner. “We know that if we wanted to sell these assets it would be quite easy but we don’t want to sell the crown jewels.”
Casino grew net profit 10.3 per cent in the first half of the year to €439m and confirmed its full-year earnings guidance. Mr Naouri pointed to this operating performance, Casino’s asset-disposal plan, and an announcement by its parent company Rallye in September that it had locked in €500m funding to strengthen its financial position as evidence that “we are doing all of our homework one by one in an orderly fashion”.
Regarding the complex group structure, he said: “We can easily merge all the different structures. It’s not a problem. I have heard the comments from the market on complexity and anything we can do to make it more simple we are quite open.”
In March Casino unveiled an alliance with Amazon to make Monoprix’s groceries available to customers of Prime Now, Amazon’s high-speed delivery service. Mr Naouri said the first sales were “much higher than we expected” and it allowed Monoprix to address the 97 per cent of Amazon’s French customers who are not already Monoprix clients. “It’s profitable for us and there is no cannibalisation,” he said. “Monoprix’s commercial margin is such that it is possible to take out part of it in order to pay for delivery and still stay profitable.”
Might Mr Naouri envisage one day selling all or part of Casino to Seattle-based Amazon? “None of this is on the table.” He said he intended for Casino to stay independent but was equally aware of his fiduciary duty to shareholders in the event of a lucrative takeover offer.
Nor is a Carrefour takeover on the cards. Mr Naouri said he stood by Casino’s original statement regarding Carrefour and declined to comment further. Both groups confirmed that Mr Naouri and his counterpart at Carrefour, Alexandre Bompard, met on September 12 at the offices of Alain Minc, a French businessmen who is both an old friend of Mr Naouri and a mentor to Mr Bompard. Following this meeting, Carrefour drew up a four-week action plan to explore synergies between the two retailers. But Mr Bompard refused to sign a six-month “standstill” clause demanded by Mr Naouri, and so Casino went public shortly afterwards with news of the talks, fearing that Mr Bompard’s refusal to sign the standstill clause meant he might launch a hostile bid.
Looking ahead, 69-year-old Mr Naouri revealed that “the succession will be internal”, pointing to a handful of strong candidates who are heading individual business lines including Monoprix and Franprix. “Among these people will be one person who will be able to succeed me,” said Mr Naouri, “not today, in the next few years.”
He added: “At the present time I think it’s important I’m at the helm. The battle has been quite tough for the past few months. I think it’s a plus for the company that I can manage it through all the challenges that we have been facing.”