Metro AG, Germany’s biggest retailer, agreed to sell its Real grocery stores in eastern Europe to Groupe Auchan SA of France for 1.1 billion euros ($1.4 billion) in Chief Executive Officer Olaf Koch’s first big deal since taking the helm.
The sale includes Real’s operations and real estate assets in Poland, Romania, Russia and Ukraine, the Dusseldorf-based company said in a statement today. Metro said it will receive 600 million euros in cash, with the remaining amount comprising lease liabilities from which the retailer will be freed.
Koch, who took office at the start of the year, has pledged to focus on Metro’s Cash & Carry wholesale unit and Media-Saturn electronics stores while cutting investment in Kaufhof department stores and Real, both of which it has tried to sell for several years. The company cut its 2012 profit forecast last month, saying Europe’s sovereign-debt crisis is hurting sales.
“The key takeaway from this deal is that the management is delivering,” Christoph Schlienkamp, an analyst at Bankhaus Lampe in Dusseldorf, said. “It is a relief for investors.”
Metro shares fell 0.3 percent to 21.53 euros in Frankfurt.
Revenue at Real, which accounts for about 17 percent of Metro’s sales, dropped 2.3 percent to 11.23 billion euros last year. The business operates 316 Real hypermarkets in Germany and 110 in Poland, Romania, Russia, Ukraine and Turkey, according to the press release. Revenue at the 91 Real stores in Poland, Romania, Russia and Ukraine exceeded 2.6 billion euros last year with a workforce of about 20,000 people.
Metro said it expects the deal to be closed next year.
Real’s earnings before interest and tax fell to 2 million euros in the third quarter of this year from 24 million euros a year earlier as better results from international operations failed to offset a decline in earnings in Germany, Metro said in a statement on Oct. 30.
“We are not fully convinced, whether it was a good decision to sell some very profitable part of the business,” Herbert Sturm, a Frankfurt-based analyst at DZ Bank AG, wrote in a note to clients today. “There remain big challenges regarding Real Germany in the next years to come.”
Metro’s majority shareholder Franz Haniel & Cie GmbH said on Nov. 27 that it plans to reduce its stake in the company to 30 percent from 34.2 percent within 18 months.
Metro shares have dropped 24 percent this year and the company that was once the world’s third-largest retailer was removed from the DAX in September. Metro’s market value has shrunk by about two-thirds since reaching an eight-year high of almost 22 billion euros in September 2007.
The sale doesn’t include Real’s business in Turkey as Auchan doesn’t have operations in the country and only wants to strengthen its existing activities, according to Metro’s release. Western Europe, eastern Europe and Asia are priority development zones for the French retailer, Chairman Vianney Mulliez said in the statement.
“The business activities of Real in Turkey have developed very nicely in recent years and show great growth potential,” Metro CEO Koch said in the statement. The CEO said on a call with journalists that he doesn’t plan to sell it at the moment.
Koch also said the retailer plans to further develop Real’s German business and isn’t considering another option at the moment, such as a sale.
Metro was advised by Goldman Sachs Group Inc. and JPMorgan Chase & Co., while Auchan worked with BNP Paribas SA. The transaction still requires approval from antitrust authorities, Metro said in its statement.
The transaction will not have any implication for Metro’s 2012 dividend, Koch told journalists today.