Galeria Kaufhof and Karstadt to create ‘merger of equals‘

German department stores Galeria Kaufhof and Karstadt Warenhaus are to merge after Austria’s Signa Holding and Canadian retailer Hudson’s Bay Co. (HBC) agreed to form a joint venture via a new holding company, they announced this month.

Signa Holding will hold a 50.01% stake in the combined retail company to be created by the merger, with HBC holding the rest. The group will have 243 stores in Germany, Belgium and the Netherlands and employ around 32,000 people, the two companies said in a joint statement. Hudson’s Bay Co. owns Kaufhof and Signa Holding owns rival Karstadt.

Under the terms of the deal, Signa Holding and HBC will form a new retail company, which will include Galeria Kaufhof and Karstadt, as well as the entire retail business of HBC Europe, namely Saks OFF 5TH, Galeria Inno in Belgium and Hudson’s Bay in the Netherlands. It will also bundle in Karstadt Sports and the entire food and catering departments of both companies -Dinea, Galeria Gourmet, Karstadt Feinkost and Le Buffet. The newly formed retail company will be led by Dr. Stephan Fanderl, the current CEO of Karstadt & Signa Retail, and include representatives from Galeria Kaufhof and Karstadt.

‘Signa has wanted to buy Kaufhof for years,’ Sandra Ludwig, head of retail investment Germany at JLL, told REFIRE. 'However, the German competition authorities still have to agree to the merger going through, so it will be interesting to see what they say. Clearly, there will be cost savings if these two chains merge. At some point, I could imagine that they’re be rebranded, either using one of the existing names or under a new name. Signa already owns several online retailers, so I would expect Karstadt and Kaufhof to expand their multichannel offerings if they merge.’

HBC will receive €411m in net proceeds for selling part of its German real estate assets to Signa, as part of the deal. HBC said it will use the proceeds to reinvest in the new joint retail business and pay down debt. The combined group is expected to have annual sales of around €5.4b, putting it behind Spain’s El Corte Inglés and Marks and Spencer in the UK, according to Euromonitor International. (ssk)

‘We are very pleased to partner with Signa and are confident in our direction for the future,’ said Helena Foulkes, CEO of HBC. ‘This partnership is a smart, strategically sound opportunity to equip both companies with the capabilities to strengthen operations and overcome the challenges in the German retail market. We believe it is the best structure for customers, HBC and our associates/employees and the city centres where we operate. Together, we will focus on seizing opportunities in the market, evolving the business model, and adapting it to meet changing consumer needs.’

Many German retailers have been struggling since Amazon deepened its footprint in Europe’s largest economy – the German market is now its second-biggest after the US. In addition, online apparel retailers such as Zalando have also taken a sizeable chunk of business away from the German high street.

Hudson’s Bay Co. and Signa Holding announced in July that they had signed a non-binding letter of intent ‘to explore a potential joint venture’.The ‘will-they-won’t-they’ merger talks have long been a fixture of the German retail scene. Kaufhof has suffered losses for many years. In March, Karstadt announced its first profit in 12 years of €1.4m for 2017.

Hudson’s Bay Co. is a diversified global retailer focused on driving the performance of high quality stores and their omnichannel offerings and unlocking the value of real estate holdings. Its formats range from luxury to premium department stores to discount fashion, with more than 480 stores globally, including Hudson's Bay, Lord & Taylor and Saks Fifth Avenue.

The Canadian group bought Kaufhof in 2015 for €2.8b from listed German retail group Metro, effectively financing the deal by leveraging Kaufhof’s own real estate in a joint venture. It also has several investments in property joint ventures, including its partnership with US-based Simon Property Group Inc. in the HBS Global Properties Joint Venture, which owns properties in the US and Germany. In Canada, it has partnered with REIT RioCan.

Signa Group is a privately-held real estate and retail holding company founded by entrepreneur René Benko in 1999. It has €12b of real estate AUM and an additional development pipeline of around €8b. (ssk)