The creditors of the bankrupt Karstadt have finally agreed to accept the offer of a wealthy German investor, Nicolas Berggruen, to acquire the department store chain and its 26 sports superstores, almost exactly one year after it and its parent company, Arcandor, had to file for bankruptcy. Berggruen made the race against an investment company, Triton, and Highstreet, the company controlled by Goldman Sachs that owns most of Karstadt’s real estate.
Berggruen’s bid for Karstadt was backed by Ver.di, the workers’ union, after the billionaire promised that all the 25,000-odd jobs within the chain would remain in place. Other details of the agreement were not disclosed, but it is reported that he is putting about €70 million on the table. Berggruen hinted in the press that he does not intend to move Karstadt’s headquarters from Essen to Berlin, where he runs other operations. He also said that he was not going to be part of the operating management, which shall continue to consist of some of the incumbent managers.
Aged 49, Berggruen is a Paris-born cosmopolitan with German roots who is said to live mainly in a hotel in Los Angeles. He made some of his money on Wall Street and in various businesses like media, hotels and agriculture. He is also the heir of Heinz Berggruen, who died in 2007. Like his son, he was a well-known art collector.
Berggruen said that is would work with a fashion company based in Los Angeles, BCBG Max Azria Group, to improve merchandising and product sourcing for Karstadt. Founded by a Tunisian immigrant who is now 61 years old and named after him, that company has annual sales of about $2.2 billion through its own brands, including Dorotennis, and has a big sourcing platform in China that works for the likes of Carrefour and Wal-Mart. This group would reportedly own 20 percent of Karstadt.
The deal has been highly welcomed among German politicians, Karstadt employees and the public, because the new owner doesn’t seem interested in closing down any of the chain’s 120 remaining department stores or its 26 Karstadt Sport stores, or in dismembering the group.
Even though Berggruen has been picked as the new owner, Karstadt is still not completely rescued: There are ongoing discussions with Highstreet about the leases, which Berggruen considers to be unusually high. The receiver’s turnaround plan had already foreseen that Highstreet would make an effort to help to save the company by reducing the total leases by €160 million in the next three years. The “landlord” evidently made its own bid to acquire Karstadt to avoid empty rent space in the case that another new owner might shut stores down.
If Highstreet and Berggruen do not manage to find a solution for the leases, it’s possible that the billionaire would pull back his offer and force Karstadt into liquidation. At that stage, a probable dismemberment could bring back the bids of Metro and Otto on the table. As reported before, the two companies were the first ones to display appetite for individual elements of the troubled chain.
Metro is still looking for a solution for its own department store chain, Kaufhof, which has not been performing sufficiently well in the past few years. Metro’s original plan was to merge Karstadt and Kaufhof in order to create a German super chain - a plan that was not welcomed by the receiver whose aim has always been to sell Karstadt as a whole. A merger with Kaufhof would probably lead to a major shutdown of many stores under both banners since the two chains have a considerable overlap of locations in various German cities.
Should this become impossible, Metro has indicated its own interest recently in selling off Kaufhof, along with its Kaufhof Sportarena sports stores, to concentrate on its cash & carry business. Several potential investors have responded to its appeal, although Metro has made it clear that it would only accept offers of between €2 billion and €3 billion.
Otto, the big mail order retailer, which already picked some pieces of Karstadt’s liquidated sister company, Quelle, is especially interested in Karstadt’s sports retailing operations, which are the largest in the country. Otto’s plan was to buy the 26 Karstadt Sports stores and to merge them with its own specialty chain, SportScheck. There are no official figures at hand on Karstadt’s sales of sporting goods, but market estimates place them at around €495 million in 2009 or 8 percent less than in the previous year.
In the meantime and in spite of the insolvency, Karstadt has continued to invest in the sporting goods sector. The Karstadt Sports store in Stuttgart has recently been completely re-furbished and now has a selling surface of 5,500 square meters over three floors. Company sources say that Karstadt now has 160,000 square meters of space dedicated to sports in both the specialty stores and the dedicated surfaces in its department stores.
