France’s financial prosecutor revealed it has been investigating food retail group Casino for financial manipulation and insider trading that allegedly took place in 2018 and 2019 when the group was locked in a battle with short sellers while struggling under heavy debts.
The prosecutor’s office said in a statement that the preliminary probe, which was opened in 2020 following a report from the AMF markets regulator, was looking into potential charges related to “stock price manipulation” carried out by a group of people, as well as corruption and “insider trading”.
The details of the investigation came on the same day Casino owner Jean-Charles Naouri unveiled a deal to combine the group’s French supermarket unit with Teract, a smaller food retailer. The two sides are in exclusive talks, which if finalised would provide a financial lifeline to help Naouri stave off creditors and restructure his heavily indebted holdings.
Casino declined to comment on the investigation. The retailer also reported a full-year loss of €316mn on Friday and higher debts than expected in its core French operation.
An executive with a penchant for complex financial engineering, 74-year-old Naouri constructed a web of holding companies through which he controls Casino. However, he overburdened them with debt and was subsequently forced to place four of the holdings that sit atop Casino — Rallye, Euris, Finatis, and Foncière Euris — into the French equivalent of bankruptcy protection in 2019.
As a multiyear reprieve granted by a French court in the debt restructuring process comes to an end, billions of dollars of repayments will come due in 2024 and 2025. Credit analysts have questioned if Rallye can meet its payments in 2025, while Casino has been selling assets in an effort to cover its obligations.
The period the prosecutor is examining covers the years before Casino’s parent companies filed for insolvency protection, during which the company’s communications to the market came under intense scrutiny. In one instance Casino and its rival Carrefour issued contradictory statements on whether they were exploring merger talks.
In addition to the long-running prosecutor’s probe, two minority shareholders in Casino — Xavier Kemlin, a descendant of the company’s founder, and Pierre-Henri Leroy, founder of proxy advisory Proxinvest — filed additional legal complaints against the company in February.
One of them, which alleges that the process by which Rallye entered insolvency protection in 2019 was fraudulent, has been referred to the Paris prosecutor’s office. A second complaint has not yet been received by investigators, the office said.
In response, Casino said Kemlin and Leroy’s allegations were “perfectly inaccurate and slanderous” adding that the group reserved the right to take legal action “as we did in 2018 against the same individuals, in reaction to the same allegations’‘.
Casino’s financial results published on Friday showed a net loss of €316mn for 2022, an improvement on the year before, but total debt rose to €6.4bn — up 8 per cent year on year.
Net debt in the core French retail operation hit €4.5bn for the year, exceeding analyst expectations, and putting further pressure on cash flow following a sharp decline in sales volumes in the last months of the year.
If the deal with Teract comes off, Casino will spin out its French retail assets such as Monoprix and Franprix and combine them with Teract, a listed company formed last year in a Spac deal involving Invivo, a farmers’ co-operative, and backed by several big names in French business. The new venture will get at €500mn in equity, but no details were given on valuations or where debt will sit in the new entities.
The retail group said it would focus on cutting costs, reducing inventory and paying down its debts in 2023, and that it was on track to complete its promised plan to sell €4.5bn in assets by the year’s end.
Casino’s share price is down by a quarter in the past month after shedding 5 per cent on Friday morning.