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Saks owner targets Europe in deal for Germany’s Kaufhof chain

February Retail Sales Decline Hit Luxury Stores The HardestFebruary Retail Sales Decline Hit Luxury Stores The Hardest

Canadian retailer Hudson’s Bay is buying German department store chain Kaufhof from Metro for 2.8 billion euros ($3.2 billion) as a launch pad to expand into Europe.

The deal comes as department stores, which had suffered from the advent of global fashion chains and online shopping, are starting to enjoy a revival after investing in ecommerce and revamping stores.

Kaufhof is Germany’s leading department store chain, its 120 stores occupying prominent locations in most major towns and cities, employing 21,500 staff and making sales of 3.1 billion euros. It also operates 16 stores in Belgium.

Hudson’s Bay, which operates department stores in Canada and U.S. luxury chains Saks Fifth Avenue and Lord & Taylor, said the deal, due to close at the end of September, was a step forward in its plan to become a “premier global retailer.”

“This is a strong foundation to explore additional opportunities for growth throughout the continent,” Chief Executive Jerry Storch said in a statement.

Reuters reported news of the deal on Sunday.

Hudson’s Bay said it aimed to expand Kaufhof’s ecommerce “aggressively”, optimise floor space in stores and improve productivity, while considering introducing the Saks Fifth Avenue and the Saks OFF 5TH banners in Germany and Belgium.

Ecommerce is growing fast in Germany, the country is Amazon’s second biggest market, but stores such as Kaufhof have been slower than North American rivals to integrate their online offering fully with their stores.

The appeal of the sector was underlined last week when Thailand’s largest retail conglomerate Central Group said it would buy a majority stake in three luxury department stores in Germany as part of its expansion in Europe.

The deals mark rare moves by foreign retailers into Germany, a country seen as too risky since Wal Mart was forced to retreat in 2006, but one now enjoying consumer sentiment at its highest level since 2001.

German is enjoying record-low unemployment, bumper wage deals and ultra low interest rates although the country’s HDE retail association has said consumers are spending more on big-ticket items such as cars and houses rather than splurging in shops and boutiques.

Metro cuts debt
Metro, Europe’s fourth biggest retailer, has long wanted to sell Kaufhof to focus on developing its cash-and-carry and consumer electronics businesses. It has steadily sold off non-core businesses in recent years as it tries to reduce debt.

Metro said it expected the sale would have a positive impact of about 700 million euros on earnings before interest and tax (EBIT) and allow it to cut net debt by about 2.7 billion euros.

“This is definitely good news for shareholders, especially the further reduction of group’s net debt,” said DZ Bank analyst Herbert Sturm.

Asked about the prospects of a special dividend, Metro CEO Olaf Koch said his focus was investing in new countries and paying down debt.

Metro’s shares, which had risen in anticipation of the sale, were down 3.3 percent at 0745 GMT, with traders saying investors had hoped Hudson’s Bay could pay as much as 3 billion euros.

Hudson’s Bay said the deal, which includes taking on Kaufhof’s liabilities, should deliver immediate value to its shareholders.

The sale thwarts a rival bid from Austrian investor Rene Benko, the owner of struggling rival chain Karstadt, who had been expected to merge the two businesses, likely resulting in numerous store closures and job losses.

Metro’s Koch said key to the decision to accept the Hudson’s Bay bid was a pledge to take on all current staff.

Hudson’s Bay is conscious of cultural differences and is used to dealing with trade unions, which play a strong role in Germany and Canada, a source close to the matter has said.

($1 = 0.8903 euros)