Berggruen Will Spend $545 Million on Karstadt After Outbidding Competitors

Nicolas Berggruen, who is acquiring German department-store chain Karstadt AG, said he’s already invested about 73 million euros of the 400 million euros ($545 million) he’s budgeted to spend on the stores in five years.

“These are investments that are really mostly capital expenditures to refresh the stores,” the 49-year-old German- American said last week in an interview during a visit to New York. “Right now I think the business just needs care and stability and direction, not confusion. We want to be very focused.”

To buy Karstadt, Berggruen had to outbid two competitors and then negotiate for lower rents with the Highstreet partnership, owner of most of Karstadt’s real estate, whose shareholders include Goldman Sachs Group Inc. and Deutsche Bank AG. He succeeded in part because he doesn’t plan to close or sell any stores, which won support from the German government, labor unions and local communities.

Germany’s economy is stronger than its European neighbors and Karstadt’s sales and cash flow are good, Berggruen said. Still, he says labor laws and “crazy” restrictions on retailing hours provide challenges.

“And the Germans are not shoppers, so you have a lot of things against you,” says Berggruen, who was called “the homeless billionaire” in 2008 after giving up his residences and choosing to live in hotels instead. Germans “are not frivolous. That’s one of the problems with department stores.”

Photographer: JB Reed/Bloomberg

Billionaire investor Nicolas Berggruen outbid two competitors and negotiated for lower rents with Highstreet partnership to buy Karstadt AG. Close

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Photographer: JB Reed/Bloomberg

Billionaire investor Nicolas Berggruen outbid two competitors and negotiated for lower rents with Highstreet partnership to buy Karstadt AG.

In addition to Berggruen Holdings Inc., whose investments range from Spain’s largest media company to an Indian car-rental firm, Berggruen also controls a charitable trust and a political think tank that’s working in places such as Africa, Europe and California.

Single Philosophy

Berggruen, whose fortune is estimated at $2.2 billion by Forbes magazine, said his investments are guided by a single philosophy: finding mismanaged or badly financed businesses that have a franchise value and good business model.

“I’m interested in buying businesses that fundamentally should exist, that have an established franchise, positive cash flow, and that are simple businesses that are not dependent on one super manager,” he said. “It’s about taking a long-term view as opposed to a short-term view and having some courage, meaning going into things that aren’t necessarily popular.”

Berggruen, whose late father Heinz Berggruen’s modern art collection was the basis for Berlin’s Berggruen Museum, said he started investing his own money when he was 16 and has been running his company since he was 25. Early in his career he had training jobs with LMS Capital Plc’s Chairman Robert “Robbie” Rayne in London, Sid Bass in Texas and Benjamin R. Jacobson, managing general partner of New York-based Jacobson Partners, he said.

Photographer: JB Reed/Bloomberg

Billionaire investor Nicolas Berggruen in New York. Close

Billionaire investor Nicolas Berggruen in New York.

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Photographer: JB Reed/Bloomberg

Billionaire investor Nicolas Berggruen in New York.

“Buying underperforming businesses or businesses that have the wrong capital structure is really the way I’ve made my money,” he said. “I don’t know what the return on capital is, but it’s fairly high, on average, maybe five to 10 times the capital, and so if you do that many, many times over, then it adds up to something that’s reasonably successful.”

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: Alec McCabe at amccabe@bloomberg.net.

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