Metro Starts Discussions to Sell Kaufhof Department-Store Chain

Metro AG said it’s in talks to sell its Kaufhof department-store chain, a deal that would end its association with a business that has been a stalwart in German shopping districts for the best part of 135 years.

While “various discussions are taking place,” no decisions have been made, as potential buyers have not yet delivered the price, financing and strategic direction that Metro’s looking for, the company said by e-mail Wednesday.

The statement from Germany’s largest retailer followed reports that Metro may be close to selling Kaufhof to Signa Retail GmbH, owned by Austrian property investor Rene Benko. Benko has offered close to 2.7 billion euros ($3 billion) for Kaufhof, Manager-Magazin reported, citing unidentified company sources. Handelsblatt cited a purchase price of about 2.9 billion euros in a separate report. Kaufhof’s main appeal to buyers is its real-estate, Barclays analyst James Anstead said.

Kaufhof owns 56 of the 137 stores it operates, including outlets in Cologne, Dusseldorf, Frankfurt, Stuttgart, Hanover and Berlin, Anstead said in a note. The property is worth about 1.35 billion euros, a person familiar with the portfolio said.

Vienna-based Signa -- which declined to comment -- plans to merge the Kaufhof outlets with Karstadt Warenhaus GmbH, the unprofitable German chain that Benko purchased in August, according to Wednesday’s media reports.

‘PR Risk’

As well as wanting assurances on price and financing, Metro will require any potential buyer of Kaufhof to demonstrate a commitment to the business, Anstead said.

“There would be considerable PR risk for Metro if a future owner closed a large number of stores,” Anstead said. “This requirement may make it more difficult for a buyer to justify paying a high price.”

Metro rose 1.2 percent to 32.18 euros at 1:22 p.m. in Frankfurt after earlier gaining as much as 3.6 percent. It has soared 27 percent this year, beating the DAX Index’s 21 percent increase, as Chief Executive Officer Olaf Koch takes steps to divest underperforming divisions and modernize stores.

Benko, 38, started his real estate business 1995, dropping out of high school to buy, renovate and sell apartments in his home town of Innsbruck. Since then, he has become one of the biggest property investors in Vienna’s inner city by acquiring assets including two former banking headquarters, and turning them into luxury hotels and stores.

He first ventured into Germany by buying 17 Karstadt properties including Berlin’s famous KaDeWe department in 2012, and last year added Karstadt Warenhaus, the company operating the stores. One of the biggest co-investors in his group of companies is Greek shipper George Economou.

Kaufhof and Karstadt have dominated German department-store retailing for more than a century. The chains have struggled to adapt to new competitors including Amazon.com Inc. as shoppers seek more international brands in an increasingly crowded market. Traditional retail “is dead,” Metro CEO Koch said in a December interview.

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