* Diniz says funds could replace BNDES in tie-up proposal
* Says Casino CEO must explain why deal is bad
SAO PAULO, July 7 (Reuters) - Abilio Diniz, the Brazilian retail tycoon seeking to merge Grupo Pao de Acucar with the local unit of France's Carrefour, counts on alternative sources of funding should Brazil's state development bank pull out, according to a newspaper report on Thursday.
Diniz told local newspaper Valor Economico that he sees unlikely that BNDES, as the state lender is known, will keep its support of the plan unless he and Casino Guichard Perrachon (CASP.PA), its partner in Pao de Acucar, mend their ties.
A plan submitted by investment vehicle Gama and unveiled at the end of June proposed the merger of Pao de Acucar and Carrefour, Brazil's top two retailers, in a complex, $14 billion asset and stock swap. Under terms of the plan, BNDES would pour about $2.4 billion into Gama, which is controlled by local securities firm BTG Pactual [BTG.UL].
Casino Chief Executive Jean-Charles Naouri said in newspaper interviews on Wednesday that the plan, of which Diniz is seen as the architect, amounts to "expropriation" -- suggesting he will refuse to back it. The Gama plan is valid for 60 days and requires the approval of all parties involved.
"I don't see other alternative" but an accord with Casino to pull the merger through, Diniz said in the interview.
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