French financial prosecutors said they had investigated food retail group Casino for financial manipulation and insider trading that allegedly occurred in 2018 and 2019 when the group was locked in a battle with short sellers while struggling under heavy debt.
The prosecutor’s office said in a statement that the initial investigation, which was opened in 2020 following a report from the market regulator AMF, was looking into potential allegations related to “stock price manipulation” carried out by a group of people, as well as corruption. and “insider trading”.
Details of the investigation come on the same day Casino owner Jean-Charles Naouri struck a deal to merge the group’s French supermarket unit with Teract, a small food retailer. The two sides are in exclusive talks, which if completed will provide a financial lifeline to help Naouri fend off creditors and restructure his massive debt holdings.
The casino declined to comment on the investigation. The retailer also reported a total loss of €316 million on Friday and higher-than-expected debt at its core French operations.
An executive fond of complex financial engineering, Naouri, 74, created a web of holding companies through which he controlled the Casino. However, he was overloaded with debt and was forced to put the four holdings above Casino – Rallye, Euris, Finatis, and Foncière Euris – into bankruptcy protection similar to France in 2019.
As a multiyear reprieve granted by the French court in the debt restructuring process is completed, billions of dollars of repayment will come due in 2024 and 2025. Credit analysts have asked if Rallye can meet the payment in 2025, when the Casino has been sold. assets in an attempt to cover liabilities.
The prosecutor’s review period includes the year before the Casino’s parent company filed for insolvency protection, when the company’s communications to the market came under intense scrutiny. In one instance Casino and Carrefour competitors issued statements denying whether they are exploring joint negotiations.
In addition to the long-running prosecutor’s probe, two minority shareholders in the Casino – Xavier Kemlin, a descendant of the company’s founder, and Pierre-Henri Leroy, the founder of proxy Advisory Proxinvest – filed an additional legal complaint against the company in February.
One of them, who said the process of Rallye entering insolvency protection in 2019 was fraudulent, has been referred to the Paris prosecutor’s office. The second complaint has not been received by investigators, the office said.
In response, Casino said Kemlin and Leroy’s allegations “completely inaccurate and slanderous” adding that the group reserved the right to take legal action “as we did in 2018 against the same individuals, as a reaction to the same allegations”.
Casino’s financial results published on Friday show a net loss of €316m for 2022, an improvement on the previous year, but the total debt rose to €6.4bn – up 8 percent per year.
Net debt in core French retail operations reached €4.5bn for the year, exceeding analysts’ expectations, and putting further pressure on cash flow after a sharp decline in sales volume in the last month of the year.
If the deal with Teract comes through, Casino will spin off French retail assets such as Monoprix and Franprix and combine it with Teract, a listed company formed last year in a Spac deal involving Invivo, a farmer cooperative, and backed by some big names in French business. The new venture will get €500 million in equity, but no details have been provided about the valuation or where the debt will be in the new entity.
The retail group said it will focus on cutting costs, reducing inventory and paying down debt in 2023, and will complete a promised plan to sell €4.5 billion of assets by the end of the year.
The price of the Casino share fell by a quarter in the past month after shedding 5 percent on Friday morning.