Hudson’s Bay in talks with Signa for Kaufhof joint venture: Reuters

Saks Fifth Avenue owner Hudson’s Bay Co is in discussions with Austrian property and retail group Signa Holding GmbH about a joint venture for its German retail chain Kaufhof, two people familiar with the matter said on Monday.

Canada-based Hudson’s Bay, which rejected Signa’s 3 billion euro bid (US$3.7 billion) for Kaufhof earlier this year, has been looking to improve its financial performance as shoppers move away from brick-and-mortar department stores and toward e-commerce giants like Inc.

The joint venture for Kaufhof being discussed by the companies calls for Signa’s department store operator Karstadt to acquire half of Kaufhof’s property company, and 51 percent of its operating company, with the option to buy the rest at a later date, according to the people who asked not to be named because the matter is private.

If the talks are successful, a deal could be announced in the next few weeks, the people added. There is no guarantee the talks will result in a deal and the negotiations could still fall apart, the sources cautioned.

Signa and Hudson’s Bay could not immediately be reached for comment.

Hudson’s Bay has been re-shuffling its department store brands, and shoring up cash by making deals. It said earlier this month that it would shutter 10 Lord & Taylor stores, with the brand’s flagship Manhattan building sold for US$850 million last year. It also sold its luxury e-commerce shop Gilt to peer Rue La La.

As of May 5, Hudson’s Bay had $3.8 billion (US$2.85 billion) in loans and borrowings on its balance sheet. Its debt to profit levels have been higher than the industry average.

U.S. activist investor Land & Buildings has been critical of the company’s strategy, urging it last week to extract more value from its substantial real estate holdings.

Hudson’s Bay bought Kaufhof in 2015 for 2.8 billion euros from German retailer Metro AG. It financed the deal with a joint venture that acquired the German retailer’s real estate, becoming its landlord.

But Kaufhof struggled to make the higher rent payments as shopper numbers fell.

Hudson’s Bay is also working with consulting firm AlixPartners LLP on cutting costs and reforming its business, Reuters reported in May.

(Reporting by Greg Roumeliotis and Jessica DiNapoli in New York, Additional reporting by Matthias Inverardi, Editing by Rosalba O’Brien)