Hudson's Bay in fresh talks to merge Kaufhof with Karstadt

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Canada's Hudson's Bay Co. was reported this week to again be in discussions with Austrian property and retail group Signa Holding GmbH about a joint venture with its German retail group Kaufhof, after flatly rejecting a €3bn bid earlier this year from the Austrian group.

Signa owns department store chain Karstadt, along with much of its highly-prized real estate, and there have long been talks about merging the two department store groups to create one powerful German brand. The reports from New York suggest that the discussions centre around Karstadt buying half of Kaufhof's property company, and a 51% majority of its operating business, with the option of Karstadt making a full takeover bid at a later stage.

Hudson's Bay bought Kaufhof in 2015 in a high-profile deal for €2.8bn from listed German group Metro AG, which saw it effectively financing the deal by leveraging Kaufhof's own real estate in a joint venture. It owns premium retail brands such as Saks Fifth Avenue and Lord & Taylor, but it has been selling off stores and e-commerce businesses in a bid to reduce its dependence on bricks and mortar stores in favour of more targeted online shopping and improved profitability. It sold Lord & Taylor's flagship outlet in Manhattan last year for $850m, and has been coming under increased pressure from activist investor Land & Buildings to realise more value from its real estate assets.

Kaufhof has 96 stores in Germany and employs 17,000 staff. Over the next two years 400 of the 1600 jobs in its Cologne headquarters are scheduled to be eliminated. While Hudson's Bay doesn't separate out figures for Kaufhof, it has said that Kaufhof's sales figures fell by 6.6% in the company's second quarter. Karstadt, by contrast, has been hauling itself back from insolvency to moderate profitability and is shortly to open its 81ststore, in Berlin.

According to Kaufhof figures, Karstadt's personnel costs are 15% below those of Kaufhof, which has helped it back out of the red. Austrian wunderkind billionaire Rene Benko of Signa has coveted Kaufhof since he bought the troubled Karstadt in 2014 from Nicolas Berggruen, who had failed to revive the chain.

Meanwhile Benko's Signa Holdings, the vehicle of Austrian billionaire wunderkind Rene Benko, is buying the Austrian retail furniture group Kika/Leiner from beleaguered South African/German holding company Steinhoff International. The price for the real estate and the operating business is said to be about €500m. Kika/Leiner operates 70 stores in Austria and other parts of Europe.

Kika/Leiner, part of Rudolf Leiner GmbH, has been unprofitable for some time and has been struggling to survive against rivals such as XXXLutz and IKEA. Things reached a head earlier this month when credit insurers withdrew guarantees for its suppliers.

The German-South African group Steinhoff has been in the headlines worldwide recently for an ongoing accounting scandal, which has seen its share price collapse by over 95%. The group has 12,000 stores in 30 countries worldwide, including Conforama in France, Mattress Firm in the USA and Poundland in the UK.

Steinhoff has appointed PwC to look into its accounts, which need to be restated through at least 2015. Early findings show inflated income and asset values going back years, and the auditors are focusing particularly on off-balance-sheet transactions. The company is carrying debt of more than €10bn, with about 20% due for refinancing this year.