Metro tries to wrap up sale of REAL chain to Redos by end-July

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The long running saga surrounding German listed retail group Metro’s attempts to sell off its troublesome supermarket chain REAL would appear to be in its penultimate phase, with Metro entering into exclusive talks earlier this month with a consortium led by Hamburg-based retail real estate manager Redos to take over the REAL chain’s real estate assets.

The sale of REAL is part of Metro CEO Olaf Koch’s efforts over the past five years to return Metro from a broad-based conglomerate to being a more focused grocery wholesaler.

Currently, Redos is offering to pay €500m in cash for REAL’s real estate assets, as well as taking on about €500m of debt from Metro. Redos was thought to have pulled out of negotiations some weeks ago, leaving recently-founded X+Bricks in a consortium with retailer Kaufland as the frontrunner. The consortium was reported by newspaper Handelsblatt to have put in a bid of just under €900m for REAL. Now Redos, along with consortium partners ECE and Morgan Stanley, is back as the preferred bidder.

REAL operates 282 markets across Germany, employing 34,000 staff, and has a turnover of about €7bn. Of its stores, 65 are owned outright by Metro, and these would be part of the sale, according to Metro’s CEO Olaf Koch, who last September (as we reported in REFIRE) explicitly ruled out a separate sale of the properties to non-operating third party.

Metro reiterated to shareholders this month that it intends to sell REAL as whole but will keep a minority stake of 24.9% in the supermarket’s operating business. It would get a put option which it could exercise after three years.

Metro said that “the aim is to conclude a sale agreement on the basis of an in-depth due diligence in summer 2019”, adding that the transaction is contingent on the approval of antitrust authorities.

Redos, founded in 2004, is focused on large-scale retail property and manages properties worth north of €2.5bn at 74 locations throughout Germany. Nonetheless, taking over 279 REAL stores, even temporarily, will be a tall order for the Hamburg group.

According to Redos’s managing director Oliver Herrmann, "We are pleased we were able to convince Metro with our concept for REAL. Redos is an independent company with extensive restructuring and real estate experience in large-scale retail. We have known REAL for many years and have rented out REAL locations. Together with Real's management, we will be using our expertise to redesign the store network."

The Redos plan would be to sell off most of the REAL stores to other retailers (such as Edeka, Kaufland, Globus, Lidl and Aldi), although it is seen as inevitable that a number of the stores will be closed down, leading to job losses. Redos’s exclusive talks with Metro are said to be examining in depth which stores REAL could continue to operate for at most a further three years, and which have little prospects of survival, in which case they would be closed.

Redos could be interested in keeping about 50 of the profitable REAL stores, and developing them into a form of “Markthalle”, a concept REAL has already been adopting, which give the stores the feel of a weekly indoor market, with fresh farm, poultry and fish products. REAL came late to the Markthalle trend, and is said to be struggling with the high costs of the concept, which so far have only featured in two stores, in Braunschweig and Krefeld.

Kaufland, part of the Schwarz-Gruppe to which Lidl also belongs, has said it would be interested in “at least 100 REAL stores”, probably the bigger ones. Lidl and Aldi would be looking at smaller sizes, while Edeka would be somewhere in the middle. However, given the oligopolistic nature of the German grocery retail landscape, the cartel authorities will be certain to take a close look at any division of the spoils.

Metro itself presented poor quarterly figures for its Q2 earlier this month, and CEO Koch admitted that the sale of REAL would cost the company a further €385m in impairments. Reports suggest that large Metro AG shareholder Daniel Kretinsky and his EPH Group is displeased with the valuation put on the REAL real estate and operating business, although this has not been confirmed by the Czech group.

In 2012 Metro AG sold off the eastern European business of the REAL chain to French retailer Auchan. Then, in 2015, it sold off its department store chain Kaufhof along with its 59 stores to the Canadian Group Hudsons Bay Company, followed in 2017 by the splitting up of its business into grocery (Metro and REAL) and electronics (Ceconomy).