The best deal that never happened: "Pao de Carrefour": Brazil's Pao de Acucar gets rebuked by Casino, its local partner, when it approaches troubled Carrefour for a global merger.

Author:Ogier, Thierry
Position:INDUSTRY REPORT: Latin Trade's DEALS of the YEAR

SAO PAULO -- To Abilio Diniz, the sky is the limit, or so it seemed. Diniz, the son of a Portuguese immigrant who launched a small grocery store in Silo Paulo after the Second World War, indeed became Latin America's largest retailer a half century later.


Then, within just six months, his group doubled in size thanks to two key 2009 acquisitions in the non-food market (Ponto Frio and Casas Bahia). But at almost 75, the still-ambitious Diniz, chairman of Pao de Acucar (listed in Sao Paulo and New York as Companhia Brasileira de Distribuicao, or CBD), was aiming even higher: He wanted to play a role in the global marketplace. In Brazil he had friends in high places who, he thought, could grease the wheels of a mega-merger with Carrefour, the world's second largest, but troubled, retailing chain.

A detailed plan was unveiled in late June after weeks of speculation. With the support of the Brazilian development bank (BNDES), which would finance most of a 2 billion euro equity swap transaction, and the BTG Pactual investment bank, Brazil's top retailer intended to merge with Carrefour. The Brazilian government's initial reaction was positive. The BNDES gave a preliminary go ahead to proceed, although it did not release any funds at that stage. Still, ministers supported the move. Fernando Pimentel, minister of industry and foreign trade, said the deal had "a strategic importance for Brazil." He sounded convinced by Diniz' nationalist argument, and saw a wide opportunity for exporting Brazilian food products. "This would open a very important gate to put Brazilian products in foreign markets. We will have for the first time Brazilian processed products abroad in a large international retailing chain," he said. Meanwhile, the presidential civil chief of staff, Gleisi Hoffmann, maintained that no public money would be involved since the transaction would be carried out by BNDESpar, the equity arm of the BNDES. Diniz spoke on the main evening news program on Globo television that night and characterized the merger as in everybody's best interest.

Finally, the grand scheme that he had been mulling for months with his close advisers, Percio de Souza from the Estater financial boutique, and Claudio Galeazzi, a partner at BTG Pactual and a former Pao de Acucar CEO, was up and running. His Novo Pao de Acucar would get even bigger in Brazil, where he would have the opportunity to sort out Carrefour's troubled subsidiary, and he...

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