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Casino bets on Brazil
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August 10, 1999: 10:31 a.m. ET
French supermarket chain buys $1.1 billion stake in Brazil food retailer
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LONDON (CNNfn) - French food retailer Casino said Tuesday it will pay 6.8 billion francs ($1.1 billion) for a 26 percent stake in Brazilian supermarket operator Pao de Acucar.
The move by the Saint Etienne-based group underscores the dominance of French retailers in Latin America. The deal propels Casino into the No. 2 spot in the region behind its Paris-based rival Carrefour.
Pao operates 344 stores in Brazil, giving it a 12.5 percent share of the market, just behind Carrefour, which controls just over 13 percent.
Analysts applauded the move into Latin America's largest market, but expressed some concerns about the cost of the deal.
"From a strategic point of view, it is a very good deal. Casino has entered the Brazilian market with the No. 2 player. The acquisition price, however, seems to be quite high but we are still waiting for further information," one Paris-based food retailing analyst told CNNfn.com.
The move took analysts by surprise at it had appeared that the Diniz family that controls Pao was determined to remain independent. "The financial crisis in Brazil may well have left them exposed, and to be able to compete with Carrefour they would need the financial muscle that Casino can provide," the Paris analyst said.
The deal will see Pao recapitalized to the tune of 5.5 billion francs, through a mixture of new ordinary stock, preference shares and convertible bonds.
Under the terms of the deal, Casino can raise its holding in Pao to 35.5 percent of total capital and 40 percent of voting rights.
In Paris Casino shares dipped almost 1.5 percent to 79.25 euros.
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