September 22, 2017 / 12:00 PM / a year ago

UPDATE 2-Shares of Carrefour Brazil slump after surprise CEO change

(Recasts to add details on turnaround, share performance throughout)

SAO PAULO, Sept 22 (Reuters) - Shares in Grupo Carrefour Brasil SA dropped the most since they went public in July, after Brazil's largest diversified retailer unexpectedly replaced chief executive Charles Desmartis with a 33-year veteran of parent Carrefour SA.

In a Friday statement, Carrefour Brasil said Desmartis, who steered the company through Brazil's largest initial public offering in four years, will be replaced by Noël Prioux effective Oct. 2. Desmartis agreed to part ways with France's Carrefour, the statement said.

Shares of São Paulo-based Carrefour Brasil dropped as much as 4.5 percent to 16.21 reais, the lowest since Aug. 9. The stock had gained 13 percent between July 20 and Thursday.

The move is related to a series of management shuffles taking place at parent Carrefour, which earlier in the day created a 14-member executive committee to help revitalize the world's No. 2 retailer. Carrefour warned last month that operating profit may fall 12 percent this year.

"Prioux arrives in Carrefour Brasil at a moment of many challenges and opportunities," Abilio Diniz, the subsidiary's No. 2 shareholder and a member of parent Carrefour's board, said in a statement.

The reshuffle comes about two months after IPO and heightening competition among Brazilian retailers, which have endured one of their toughest business cycles in the past three years as the economy plunged into a recession not seen in more than a century and unemployment rose to a record.

Smaller rival GPA SA, owned by Carrefour's archrival Casino Guichard Perrachon & Cie, rapidly grew market share in food and staples last quarter thanks to an aggressive turnaround that drove sales higher.

"One strategy has probably worked better than the other," Vitor Suzaki, an analyst with Lerosa Investimentos. "The differences have grown huge, and someone is probably taking the heat for it."

Brazil, Carrefour's second-biggest market after France, accounted for 17 percent of sales in the first half.

Prioux's confirmation as Carrefour Brasil CEO is conditioned on issuance of a work visa by Brazil's Labor Ministry, which is expected within 30 days. Until then, chief financial officer Sébastien Durchon will be Carrefour Brasil's acting CEO, the statement said.

Carrefour Brasil, which used part of the proceeds from the IPO to reduce debt, plans to sell 2 billion reais ($637.4 million) worth of commercial paper, according to a separate statement. The money will be used to help prop up working capital needs and repay outstanding intercompany loans.

$1 = 3.1377 reais Reporting by Ana Mano and Bruno Federowski; Writing by Guillermo Parra-Bernal; Editing by Chizu Nomiyama and Bill Trott

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