Signa Holding, the Austrian property and retail group that owns German department store chain Karstadt, has made a 3 billion euro (US$3.5 billion) offer to acquire Hudson’s Bay Co’s German peer Kaufhof, people familiar with the matter said.
Hudson’s Bay shares jumped 7 percent to $12.04 on the news, giving the company a market capitalization of $2.1 billion (US$1.6 billion).
The bid comes one week after Hudson’s Bay agreed to sell its flagship Lord & Taylor building in New York for US$850 million to WeWork Cos.
Signa submitted the fully financed bid this week, the sources said on Wednesday. They added that Signa expects Toronto-based Hudson’s Bay, which has been reluctant so far to engage in negotiations to sell Kaufhof, to respond to the offer by the middle of November.
At a valuation of 3 billion euros including debt, Signa’s bid values Kaufhof’s real estate at 2.63 billion euros, the sources said. Signa has offered to assume all of Kaufhof’s liabilities, including a 1.34 billion euro real estate loan by German bank LBBW, the sources added.
The sources asked not to be identified because the offer is confidential. Hudson’s Bay and Signa declined to comment.
Signa tried to buy Kaufhof in 2015, but Hudson’s Bay outbid it by paying 2.5 billion euros including debt for the German chain and its Belgian subsidiary. Since then, Kaufhof’s finances have deteriorated, to the point where vendors are finding it more difficult to find trade credit insurance to make shipments.
Hudson’s Bay financed Kaufhof’s acquisition by using a joint venture that acquired Kaufhof’s real estate and became its landlord. Hudson’s Bay kept a 63 percent stake in the joint venture, and sold the rest to other major investors, including Simon Property Group Inc.
This financial engineering backfired, as Kaufhof struggled to cope with the higher rents the joint venture imposed, as well as declining foot traffic in stores. Kaufhof is now trying to convince labour unions in Germany to accept steep pay cuts, a tough ask ahead of the upcoming holiday shopping season.
Hudson’s Bay said last week it would raise $1.6 billion (US$1.24 billion) through divestiture of the Lord & Taylor building, as well as an investment in Hudson’s Bay by U.S. private equity firm Rhône Capital. Earlier this week, it also said a joint venture between Hudson’s Bay and RioCan Real Estate Investment Trust was exploring a sale of a store property in Toronto.
Selling Kaufhoff would release Hudson’s Bay from its liabilities and provide an infusion of cash into the loss-making company at a time when retailers throughout North America are being squeezed by price competition from e-commerce retailers such as Amazon.com Inc.
Hudson’s Bay remains under pressure from activist hedge fund Land and Buildings, which says the company’s vast real estate portfolio would deliver more value to shareholders if it was sold or used for purposes other than retail.
TURNING KARSTADT AROUND
Privately held Signa, founded 17 years ago by property developer René Benko, now runs more than 125 retail locations in Northern Europe, generating annual revenue of about 3.8 billion euros, according to its website. It owns a big real estate portfolio with a gross asset value of more than 10 billion euros.
Signa bought Karstadt from the brink of bankruptcy in 2014 for the nominal consideration of just one euro from its majority owner Nicolas Berggruen, son of an international art dealer.
Signa restored Karstadt to profitability: realigning its offerings closer to the tastes of German consumers, cutting costs and making operations more efficient. Karstadt and Kaufhof are now the two largest department store operators in Germany.
Last month, Signa said it had completed an equity raise of 1 billion euros, giving it more firepower to pursue acquisitions.
Update: Hudson’s Bay subsequently confirmed it had received a bid from Signa, calling it “incomplete, non-binding and unsolicited, with no evidence of financing,” Reuters reported.
(Reporting by Greg Roumeliotis and Carl O’Donnell in New York; Additional reporting by Matthias Inverardi in Duesseldorf; Editing by David Gregorio)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo courtesy of Reuters/Kai Pfaffenbach