Nicolas Berggruen, the entrepreneur who acquired Karstadt out of bankruptcy proceedings in 2010, has sold a substantial part of the German department store company's assets to Signa Holding, a Vienna-based investment company specializing in real estate.
The deal comprises the sale of 75.1 percent of the shares in Karstadt Sports, the company that runs 28 relatively large specialty sporting goods stores in Germany. Berggruen has also sold Signa a similar stake in the company that operates three premium Karstadt department stores: Alsterhaus in Hamburg, Oberpollinger in Munich and KaDeWe in Berlin.
Many details on the deal between Berggruen and Signa have not been disclosed, but they have announced plans to invest a total of some €300 million in the three legal entities that Berggruen established to manage the Karstadt assets that he had acquired three years ago: one for the sporting goods stores, one for the premium department stores and the third one for all the other 86 “regular” department stores of the group. This third company remains under Berggruen's control for the time being.
At this point, it is far from clear how the money is going to be spent. While no official plan has been announced so far, some newspapers and magazines have been giving some figures that have not yet been confirmed: An amount of some €100 million may be spent on the modernization of the three top department stores, while some €50 million are said to be reserved for the development of the 28 sporting stores within the next 18 months. Only €15 million would be spent on the 86 regular department stores over the next five years.
Signa Holding is an investment company controlled by René Benko, an Austrian self-made billionaire aged 36. He launched Signa at the age of 22 and started by creating medical centers in Austria and elsewhere. Later on, he invested more and more in luxury real estate, such as premium properties in Vienna and Kaufhaus Tyrol, a prestigious department store in Innsbruck. Benko is said to be excellent at networking and the supervisory board of Signa, of which he is chairman, is composed of many well-known personalities including a former Austrian chancellor, Alfred Gusenbauer, former vice Chancellor Susanne Riess and Wendelin Wiedeking, the former long-time chief executive of Porsche.
Benko has been developing business relations with Berggruen over the past few years, acquiring several buildings that house Karstadt department stores. The landlord's latest deal was the takeover of Alsterhaus' premises in Hamburg. Currently, Signa owns the buildings of all three premium department stores of Karstadt and the premises about 18 other Karstadt stores.
It should come as little surprise that Benko has already looked into Galeria Kaufhof, Karstadt's arch-rival in Germany's retail landscape and operator of 13 Kaufhof Sportarena specialty sporting goods stores. He did so two years ago, when Metro, Kaufhof's parent company, put it on the block. Apparently, the negotiations with various interested parties failed, and Metro decided to keep the chain.
This decision was basically taken by Olaf Koch after he was appointed chief executive of Metro, but he now seems to have changed his mind. Last week, he revealed in an interview with Wirtschaftswoche that he could reconsider the sale of Kaufhof, as the circumstances have changed. At the time, the performance of the department stores was not satisfactory, but the chain has had a “fantastic development” since then, at least in Koch's judgment.
He said, however, that the profitability of any department stores is generally low. Additionally, Koch does not believe that Kaufhof is fit to make it on the international stage as successfully as other parts of the group such as Metro Cash & Carry and the group's two consumer electronics banners, Media-Markt and Saturn. The only other country where Kaufhof is in the market is Belgium through GB-Inno.
However, it is probably not a coincidence that Koch has come up with the possibility of divesting Kaufhof soon after Benko's intervention at Karstadt. Reportedly, the Austrian entrepreneur is positive about the idea of building up a large international block of department stores. This approach is far from being new, but has never made it from theory to practice. In fact, Karstadt and Kaufhof compete with one another through geographic overlaps and poor differentiation in pricing and offering. A merger would cause a major clean-out of their store portfolio.
Possibly, Koch has aired his new idea to sell Kaufhof for a completely different reason, as the German labor unions in the retail sector are preparing for a clash over wages with their employers. It may have been Metro's intention to raise the ghost of a Kaufhof/Karstadt merger to show the employees' party what might happen if they try to drive a hard bargain.
