The deal Jean-Charles Naouri signed this month to try to save his indebted French supermarket group Casino has roots stretching back almost 30 years to a fateful meeting with a business school graduate.
The man some used to call the “godfather of French retail” had summoned 25-year-old franchisee Moez-Alexandre Zouari, wanting to know how the young entrepreneur’s audacious plan to open 100 stores in apparently saturated city-centre markets could possibly be a good idea.
“I told him I had tested it with my wife, and we figured you need a store every 300 metres or so because city residents can’t carry heavy groceries much farther,” Zouari recalled. Naouri, a trained mathematician, “quickly calculated in his head and saw the opportunity”, and soon invested to help Zouari expand.
Having worked together in different forms ever since, the 74-year-old Naouri is now making another big bet on an idea hatched up by Zouari as the executive tries to save what remains of his once sprawling empire ahead of looming debt repayments next year.
The complex deal would merge Casino’s French food retailers with Teract, a company Zouari founded with two prominent French businessmen via a Spac deal last year. It offers a financial lifeline that also allows Naouri to save face since it is not an outright sale.
The pair’s longstanding relationship may have made Zouari the only person who could convince Naouri to relinquish his grip on Casino, said people close to the deal.
“Until now the other deals Naouri had to choose from were all going to hand him a loss,” Zouari told the Financial Times, referring to approaches by rivals Carrefour and Auchan. “People don’t understand that he is not just a financier, he is very attached to the company he built.”
Naouri, described as prickly and independent by people who know him, has come to trust Zouari. “He has the ability to focus on the details and also has a vision for the future of retail,” Naouri told the Financial Times. “I have a lot of respect for him as a professional . . . and have come to consider him a friend.”
Naouri is part of a generation of French businessmen, including Vincent Bolloré and Bernard Arnault, who have used complex financial engineering to build business empires via debt-fuelled acquisitions. But the retail sector has been decimated over the past decade by ecommerce and price wars, and his business has not generated enough cash to support its layers of debt.
Casino, whose market value has shrivelled to less than €1bn from a peak of €11bn in 2014, has been racing to sell off assets to make debt repayments, including a recent chunk of shares in its listed Brazilian business Assai.
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If the deal is finalised, Casino will spin out and combine its French retail operation with Teract, a listed company owned by Zouari, tech billionaire Xavier Niel, banker Matthieu Pigasse and France’s biggest farmers’ co-operative InVivo.
The two sides announced exclusive talks earlier this month but disclosed neither a valuation nor how much of Casino’s debt would be transferred. Teract will inject at least €500mn into the venture.
People familiar with the deal said the combined retail businesses would be placed in one entity, with Naouri as chief executive and Casino owning 60 per cent to Teract’s 40 per cent.
A second entity will act as a central purchasing platform to supply the retail stores with locally grown fruit and vegetables, wine and baked goods via InVivo’s 300,000 farmers. Zouari will lead it, with Teract and its backers owning 60 per cent to Casino’s 40 per cent.
The idea is to create a vertically integrated retailer to appeal to consumers who are willing to pay a premium for sustainable, locally sourced food.
Investors reacted with scepticism on the morning of March 10, hours after the deal was announced and the same day Casino disclosed weak annual results. One hedge fund manager who has been short Casino said the “half-baked deal announcement” was an attempt to distract from the group’s cash burn.
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Analysts at Barclays said they “struggle to see the benefits of a potential combination with Teract and remain downbeat regarding Casino’s performances in France”.
But there are likely to be benefits for Naouri, who controls Casino through a series of holding companies that have been in a court-protected debt restructuring process since 2019. Naouri is betting the deal will rejuvenate Casino and stem market share losses, which could help him convince the judges overseeing the holding companies’ restructuring proceedings to give him more time to pay creditors.
Casino faces €1.2bn in debt maturities in 2024 and €1.8bn in 2025. Another €1.9bn is due at holding company Rallye in 2025.
Surprisingly, negotiations on how much of Casino’s debt would be placed on the new retail group proved straightforward because Naouri promised to cap it at two times earnings before interest, tax, depreciation and amortisation, Zouari said. “We thought it would be the toughest part of the talks but in the end it was not.”
Analysts at Bryan Garnier expect €2.2bn of Casino’s secured debt with banks to move to the new venture, and warn that Casino shareholders and unsecured creditors risk losing out. Meanwhile, Teract will be well placed to scoop up assets cheaply should Naouri prove unable to service his debts.
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On a more personal level, the transaction could provide Naouri with an answer to the thorny question of his successor. The Casino boss has come to regard Zouari as “a spiritual son”, according to one person who has worked closely with both.
The deal also cements Zouari’s rise to the upper echelons of France’s business world after he and his wife, Soraya, spent decades building their company in the shadow of Casino. Their fortune was estimated at €1bn last year by business magazine Challenges, putting him 113th in France, while Naouri has slipped out of the rankings.
When the Franco-Tunisian entrepreneur hit his pledge of opening 100 Franprix stores after 10 years, Naouri invited him for lunch in the palatial dining room of the exclusive Hotel Bristol. “I wasn’t used to such grandeur,” Zouari recalled.
He went on to became Casino’s biggest and most profitable franchisee, with a peak of about 500 stores jointly owned with Naouri via two companies. Naouri initially bankrolled the expansion in exchange for a minority stake.
In 2019 Zouari started selling some of his shares to Naouri, using the proceeds to diversify his family’s business through acquisitions. The following year he bought a controlling stake in frozen food chain Picard and teamed up with Niel and Pigasse to create the Spac that would become Teract.
When they went to see Naouri as they hunted for its first target, he made it clear he did not want to sell off his company in pieces. Yet when the trio unveiled a deal last year to merge with the retail arm of InVivo, Naouri sent Zouari a congratulatory text.
“He is a man of few words so messages like this are rare,” said Zouari. “I thought he was sending me a subtle message that he was interested in our project.”
It was a hunch that proved correct — about six months later they began negotiating their next joint venture.
Additional reporting by Robert Smith in London