Morningstar | Rallye's Last Hope to Maintain Control of Casino Could Be Good News for Casino's Shareholders
Rallye Group (and its subsidiaries Fonciere Euris, Finatis and Euris), no-moat Casino's parent company (52% of Casino's share capital), announced on 23 May that it had requested and obtained the opening of safeguard proceedings for six months. According to a press release, Casino is not concerned by these proceedings, while Rallye and its subsidiaries have today pledged nearly all of their shares as collateral to access credit lines. The press release also said that pending the approval of a safeguard plan, the payment of their debts are suspended. The trading of Casino shares was halted following the announcement yesterday, falling almost 7%. Today, Casino's shares opened up almost 18% at EUR 33 per share, close to our EUR 32 FVE, which we maintain given that Casino's underlying business is not affected by the announcement.Safeguard proceedings can last up to 18 months and aim to protect companies (which are not in default), while giving them sufficient time to reprofile their debt (which could be rescheduled over 10 years). The plan needs to be approved by a judge, who will decide whether Rallye will be able to restructure its debt. If the judge rejects the submitted plan it will lead to insolvency proceedings or liquidation for Rallye, which in turn could result in Rallye losing control over Casino.
If Rallye convinces the judge, by providing evidence it can repay its debt sustainably over the next few years, it can restructure its debt for a period up to 10 years, which could be positive for Casino's shareholders. In such a scenario, Casino would probably not have to continue supporting its parent's balance sheet through its value-destroying dividend policy (8%-9% dividend yield), and would be in a position to cut dividends at a more sustainable level, improving its free cash flow and credit profile.
Casino Guichard-Perrachon is a food retailer based in France. Co. operates hypermarkets, supermarkets, discount stores, convenience stores and cafeterias. Co.'s stores are discount stores selling groceries and consumer goods, and providing services like financial and insurance services, real estate, and restaurants. Co. operates hypermarkets under the brand Geant Casino; urban and rural supermarkets under the brand Casino Supermarches; city-centre supermarkets under the brand Monoprix; convenience/national superettes under the brands Petit Casino, Vival and Spar; covenience-paris area stores under the brand Marche Franprix; and discount stores under the brand Leader Price.
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