The humbling of Casino chief Jean-Charles Naouri

Five years ago Jean-Charles Naouri had an opportunity to sell his French grocery empire Casino before it crumbled under a mountain of debt.

US short seller Muddy Waters Research had already sounded the alarm bell about the indebted group’s opaque structures when in September 2018 Alexandre Bompard, the chief executive of Casino’s bigger rival Carrefour, suggested a merger. Bompard was prepared to allow Naouri to become the biggest shareholder in the merged group, according to people with knowledge of the meeting.

Naouri’s reaction was fiery. Casino went public about the approach and said it rejected it. Carrefour was forced to clarify that no formal offer had been tabled. The move blew up any chance of an accord, the people said.

The episode was typical of Naouri, say people who have worked with him and describe him as a brilliant mind blinded by growing paranoia.

“Once the Muddy Waters attack came, he lost all direction and sense,” said a person who worked with Naouri. “He is extremely talented and paranoid . . . He closed the door almost immediately on the Carrefour deal. He thought he could save the company himself.”

Casino’s market share has since eroded and its share price has plunged from about €33 to €3 apiece as the business haemorrhages cash to prop up operations. Now Naouri’s 51 per cent stake is set to be wiped out as part of a bailout led by Czech billionaire Daniel Kretinsky.

The deal is expected to be finalised by the end of the month, closing a chapter in a decades-long saga that has stunned France’s business establishment, who first rallied around one of their own.

“The real story is how the Paris business world enabled him for so long,” said the person who worked with him. “There was extreme respect for him in Paris business circles so the banks did not do their job. If he had not been so protected and seen with reverence, it never would have dragged on so long.”

Naouri “had the right vision”, Clement Genelot, analyst at Bryan Garnier said. “He was among the first to believe in the rise of online retail . . . and to see that large hypermarket formats were doomed. But . . . he was already constrained in terms of investment capacity.”

A Casino spokesperson said: “Anyone who knows Jean-Charles Naouri can certify that he remains calm in all circumstances even if the 2015 attack (by Muddy Waters) was violent.”

Born in Algeria and raised by a single mother, Naouri gained entry into France’s elite universities thanks to a talent for mathematics. There he rubbed shoulders with future leaders and captains of industry. He joined the administration under Socialist president François Mitterrand, where he masterminded reforms designed to liberalise France’s financial markets. His intellectual abilities impressed many.

“He’s the smartest man I’ve ever met, really in another category,” said Louis Schweitzer, former chair of Renault, who first met Naouri in government. 

After a stint at Rothschild, he took over troubled retailer Rallye in 1991, then rivals Casino and Leader Price a few years later. Ensued a debt-fuelled expansion in Asia and Latin America.

Naouri used the “Breton pulley”, a French financial technique embraced by other emerging entrepreneurs including Vincent Bolloré: it allowed him to control Casino with a minimal amount of capital through a cascade of holding companies.

But the low-margin retail sector meant he was never able to reduce the group’s debt pile, preferring instead to reserve firepower for acquisitions, according to Genelot.

It took an American to break the French omertà surrounding the faultlines in Naouri’s empire. Short seller Carson Block’s Muddy Waters took aim at Casino in December 2015, when his hedge fund first disclosed its short position.

At first Naouri appeared to shrug off the attack, selling off the Asian operation and raising debt from banks and bond investors. But the leverage across his group would eventually prove his downfall. 

“The French banks were far more willing to ‘extend and pretend’ than we anticipated,” Block told the FT this week.

Many in Naouri’s camp see Block’s attack as the cause of Casino’s financial woes, rather than a consequence. Without Muddy Waters, Casino “would not be in this financial situation”, said a person with direct knowledge of Naouri’s thinking. “Most people agree the assets are good . . . There was a phenomenon of asphyxiation after the short attacks that made refinancing difficult.”

Blaming Muddy Waters for Casino’s problems is “delusional,” Block said.

By 2019, the four holding companies above Casino, which had more than €3.7bn of debt and derivative liabilities, were forced to file for the French pre-insolvency process, known as a “safeguard”.

Casino critics have complained about being harassed or surveilled: Block revealed in 2017 that a French corporate intelligence operative had posed as a Wall Street Journal reporter in an attempt to uncover more information about his strategy. Kepler Cheuvreux in 2020 told clients that Fabienne Caron, an analyst who had written critical reports on Casino, had received “anonymous intimidation attempts”.

Caron, who has since left Kepler, declined to comment. Block said he believed Naouri was behind these efforts. Naouri and Casino have denied the allegations.

For Block, the root of the businessman’s downfall was hubris, which “manifested itself in a failure to manage risk. He embraced financial risk as though he thought he was impervious to it,” he says.

The current restructuring talks have taken their toll on the 74-year-old, whose wealth, estimated at $1.2bn by Forbes in 2015, has evaporated. He “is occupied seven days a week doing everything to bring Casino back to safety”, the person close to him said. “It’s really about how to bring Casino to the right port.” Once it is all over, he might “take a sabbatical year, do some teaching, or start another business”.

“He’s been affected by it all,” said another person close to the talks. “It’s his life’s work.”

The story was updated with additional comments from Carson Block and Casino