Karstadt and Kaufhof owners sign letter of intent for joint venture

Canadian retailer Hudson’s Bay Co. and Austria’s property and retail group Signa Holding have signed a non-binding letter of intent ‘to explore a potential joint venture’, Canada’s Hudson’s Bay Co. (HBC), announced this month. Hudson’s Bay Co. owns German department store chain Kaufhof and Signa Holding owns rival Karstadt.

The Canadian group has refuted widespread media claims that it has signed ‘a binding agreement to sell or combine its European business or properties’: ‘While HBC does not generally comment publicly on market speculation or rumors, in light of recent media reports, HBC believes it is prudent to advise stakeholders that it is in discussions with Signa Holding and has signed a non-binding letter of intent with respect to the exploration of a potential joint venture,’ the company said in a statement earlier this month.

If the joint venture goes ahead, Signa, which is controlled by Austrian property billionaire René Benko, is expected to manage the business and own more than a 50% stake. Additionally, he is expected to acquire a 50% interest in two property funds which own a number of Galeria Kaufhof stores. In return, Hudson’s Bay Co. is expected to receive almost €1b. Hudson’s Bay’s Dutch stores could also be transferred to the joint venture, according to analysts, who speculate that up to 15 stores are likely to be axed in Germany, making job losses inevitable. In addition, Kaufhof employees could be subjected to pay cuts if the joint venture were to adopt Karstadt’s collective wage agreement, which typically offers lower wages than Kaufhof. Hudson’s Bay Co. declined to comment. Signa could not be reached for comment.

The will-they-won’t-they-merger talks have long been a fixture of the German retail scene, particularly given that the combined group would create a retail behemoth at a time when many of the country’s retailers are struggling.Kaufhof has suffered losses for many years. In March, Karstadt announced its first profit in 12 years of €1.4m for 2017.

Just last month, Hudson’s Bay Co. was reported to have renewed discussions with Signa about a joint venture,after flatly rejecting a €3b bid from the Austrian group in February to merge Karstadt (79 stores) and Kaufhof (96 stores).

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, Saks Fifth Avenue, Saks OFF 5TH and Belgian department store group Galeria INNO.

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 United States and Germany. In Canada, it has partnered with REIT RioCan. (ssk)