Hudson's Bay Company (HBC), the owner of Galeria Kaufhof department stores in Germany, has reacted with circumspection to a bid reportedly worth about €3 billion from Signa. The Austrian group already owns Karstadt, the leading competitor for Kaufhof, and both department store groups are significant players in the German sports market.

HBC described the bid as incomplete, non-binding and unsolicited, with no evidence of financing. The Canadian company, which also owns Saks Fifth Avenue, reiterated that its European business was an important part of its strategy, but added that it would study Signa's offer in due course.

Shortly after the initial bid, Signa reportedly sent the details of the financing to HBC. This included a copy of a commitment letter from Raiffeisen Bank International for €700 million. Another part of the financing should come from a capital increase by Signa last month and the assumption of a real estate loan worth €1.34 billion from the German bank LBBW, as reported by Reuters. Should HBC agree to engage in negotiations, Signa could complete due diligence in two weeks, the Austrian company informed HBC.

A takeover of Kaufhof by Signa would form a department store giant in Germany and it would further enlarge the Austrian group's fast-expanding retail business. Kaufhof has 99 stores in Germany, against 79 for Karstadt, which could lead to some overlaps.

Both companies have long been customers for sporting goods brands through their department stores as well as dedicated sports stores. However, HBC Europe, the European arm of HBC, indicated in an internal memo earlier this year that it would quit running Sportarena stores at the end of January 2018. The plan called for Sportarena stores to be converted into fashion outlets, to be integrated into Galeria Kaufhof department stores or closed down, leading to the closure of Sportarena's head office in Frechen. HBC said that the closures have since moved ahead.

Established by René Benko, an Austrian property developer, Signa has turned into a major retail player after a raft of acquisitions in the last two years. They included several sports, outdoor, bicycle and fashion retailers, such as Internetstores, Tennis Point, Probikeshop, and several more. Signa's website indicates that it generates annualized sales of about €3.8 billion from 125 retail stores in Europe.

The bid by Signa reportedly covers the Kaufhof department stores as well as related real estate. As part of the transactions around its acquisition of Kaufhof, HBC decided to spin off the real estate and place it in a joint venture of which it owns more than 60 percent, while the remaining shares are in the hands of investors such as the Simon Property Group. The bid includes an offer of more than €2.6 billion for the 41 pieces of real estate held by this joint venture.

Signa already attempted to take over Kaufhof in 2015 but was outbid by HBC, which forked out €2.5 billion including debt for the German chain. In the interval, Kaufhof's financial situation has come under pressure, partly because the real estate joint venture imposed higher rents on the department stores. The company is currently trying to negotiate a pay cut with its employees.

Karstadt was bought on the brink of bankruptcy in 2014 from its majority shareholder, Nicolas Berggruen. It has reportedly returned to profit after 3,000 staff cuts, three store closures and multiple efforts to improve its assortment, to reduce costs and make the operations more efficient. Reuters reports that Karstadt is on track to report €87.5 million in earnings before interest, tax, depreciation and amortization this year.

HBC has been under some pressure from Land & Buildings Investment Management, an activist hedge fund, to divest some of its assets. The firm claims that HBC's real estate could deliver more value to shareholders if it was sold or used for purposes other than retailing.

HBC already agreed last month to sell its flagship Lord & Taylor building in New York to We Work, in a transaction valued at $850 million. A joint venture between HBC and Riocan Real Estate Investment Trust is exploring the sale of a store property in Vancouver. The Canadian group also raised equity from Rhone Capital, a private equity firm.

Meanwhile, Kaufhof has appointed Roland Neuwald as its chief executive. He takes over from Wolfgang Link, who became chief executive of HBC Europe earlier this year. Neuwald previously spent 14 years with the Metro group, which owned Kaufhof before Signa. Among other functions, he has been chief executive at Real Deutschland, the German supermarket chain. He left in 2012 to become a consultant.