Metro to Keep Stake in Food Unit as Split Details Unveiled

  • German retailer details plans for splitting in two next year
  • Demerger plan won’t require capital increase, company says

German retailer Metro AG quashed speculation that it plans to sell shares to fund the spin-off of its Cash & Carry food wholesale stores and Real hypermarkets from the Media Markt and Saturn electronics chains.

The company has no plan to increase its capital when the split takes place in the middle of next year, according to a statement Monday. Metro also said it will keep a 10 percent stake in the food business, an arrangement that some analysts said could weigh on the food company’s stock should Metro later sell the holding to invest elsewhere.

“If the stake is sold, then a food company shareholder’s stake is diluted and Metro receives cash,” Bruno Monteyne, an analyst at Sanford C. Bernstein, said in a note. “Shareholders only own 90 percent of the food company directly versus 100 percent today. Why demerge a company if you keep cross shareholdings?"

Metro shares fell 0.5 percent to 27.83 euros, after initially rising 4.6 percent after the release of the statement. 

Management Appointments

The announcement brings more color to a process that will lead to a breakup of food, computer and appliance stores that Europeans shop in daily. Chief Executive Officer Olaf Koch is splitting up the company to unlock value for investors and pursue acquisitions.

Metro also announced a number of management appointments including Juergen Fitschen, who after stepping down this year as co-CEO of Deutsche Bank AG will become supervisory board chairman for the future consumer electronics company. Current Metro supervisory board chairman Juergen Steinemann will retain that title at the food company.

Monteyne had said in an Aug. 31 note that the spun-out food company may be too dependent on the Russian market for generating cash flow, and that the company may need a rights offering to let shareholders buy new equity to fund the split plan.

The future food company will assume “almost all” existing financial liabilities of the group, it said. Monteyne estimates Metro’s year-end debt at 4.9 billion euros.

The company plans to hold a conference call for analysts at 8:45 a.m Frankfurt time on Tuesday.

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