Hudson’s Bay Company is still shopping for acquisitions in Europe, even as it announced Monday that it is buying a chain of German department stores in a deal worth $3.3 billion (Cdn.).
“Having surveyed the European marketplace for many years, this transaction was a long time in the making,” said Richard Baker, HBC governor and executive chairman, in a conference call with analysts Monday morning.
He called the newly purchased Kaufhof chain of department stores, operating in Germany and Belgium: “An ideal platform for HBC’s entrance into Europe, (providing) a base from which we can continue to grow in the future.”
Kaufhof has 103 Galeria Kaufhof locations and 16 Sportarena stores. Kaufhof also operates Belgium’s only department store with 16 Galeria INNO locations across the country. The parent company is Metro AG.
The deal is expected to close by the end of the third fiscal quarter.
The purchase will be financed by the sale of at least 40 of Kaufhof’s owned or partially owned properties to Simon Property Group, a joint venture between HBC and U.S-based Simon Property Group.
Baker said shareholders will benefit from the deal in the short and long-term, as it adds $200 million in earnings (EBITDA) to HBC and increases the value of the underlying real estate.
The joint-venture real estate partnership between HBC and Simon was announced in February, with a stated goal of purchasing properties worldwide and adding diversity to the portfolio.
At the same time, HBC announced a joint real-estate venture with RioCan Real Estate Investment Trust.
Chief executive officer Jerry Storch said HBC will be bringing Saks Fifth Avenue and Saks Off Fifth to Germany and Belgium, primarily within existing real estate.
He declined to provide a timeline.
“Saks Fifth Avenue is a global luxury brand with international recognition and we believe that there is untapped potential for upscale luxury retail in Germany,” said Storch.
He said Canadian consumers will benefit from having European brands made available to them in Canada.
As a result of the acquisition, HBC’s revenue mix is now diversified globally, with 44 per cent of revenue coming from the U.S.; 31 per cent coming from Germany; 23 per cent from Canada and two per cent from Belgium, Storch said.
Baker has proven adept at unlocking the real estate value of HBC, selling the Zellers stores for $1.8 billion to Target Corp., and selling and leasing back the flagship Queen St. property for $650 million.
When the deal closes, HBC will have 464 locations in four countries under eight different banners, including Lord & Taylor and Saks Fifth Avenue. The company estimates its eight main banners will generate about $13-billion in annual revenues.
“This transaction is a significant step forward in our plans to become a premier global retailer,” Storch said Monday in a statement.
“This is a strong foundation to explore additional opportunities for growth throughout the continent.”
The agreement with Germany’s Metro Group, announced early Monday from Cologne, Germany, includes 59 properties in prime urban locations.
HBC will also acquire various logistics centres, warehouses and other properties, along with the Galeria Kaufhof head office in Cologne.
The companies’ joint agreement says HBC has made “extensive commitments” to maintain employment levels and store count, and for Galeria Kaufhof to remain headquartered in Cologne.
The stores are unionized.
Metro had said months ago it wanted to divest Kaufhof to focus on its Metro Cash & Carry business, the Media-Saturn consumer electronics chain and its Real hypermarket.
Hudson’s Bay beat out Vienna-based Signa Retail, controlled by Austrian property developer Rene Benko, who also owns Kaufhof competitor Karstadt.
Signa said in a statement that it will focus on developing Karstadt.
The mostly cash bid by Hudson’s Bay was deemed a better offer because it included labour-related concessions, a more solid financing structure and plans to grow and invest, people familiar with the deal said. A merger of Kaufhof and Karstadt, on the other hand, may have led to job losses.
“Beyond the attractive financial and transactional aspects, a key factor for us was the fact that HBC has made binding guarantees to take on the approximately 21,500 Galeria Kaufhof employees in Germany and Belgium,” said Olaf Koch, chairman of Metro’s management board.
Kaufhof and Karstadt have dominated German department-store retailing for more than a century, though they have struggled recently to adapt to new competitors including Amazon.com Inc. as shoppers seek more international brands in an increasingly crowded market. Kaufhof’s same-store sales fell 1.4 per cent last year and slipped again in the first quarter.
Hudson’s Bay Co. recently reported a $54-million loss in the first quarter of 2015.
But Storch believes the future of retailing remains the department store model.
“They are the distribution centre around the corner from your house when you want it. The future of department stores I believe is quite bright.”
- With files from Bloomberg