Hudson’s Bay Co., Austria-based Signa form joint venture in European retail

TORONTO — Hudson’s Bay Co. has struck a deal to merge its German department stores with its biggest rival in the European market.

The Toronto-based retailer, which owns Galeria Kaufhof, announced Tuesday an agreement with Signa Retail Holdings, the Austrian-based brand behind Karstadt, a competitor department store in the market.

HBC chief executive Helena Foulkes said the deal will earn HBC $616 million that will be funnelled into reducing debt.

“It has been a tough German market and that has been true for every player in the market, so this deal allows both of us to be stronger together,” she told The Canadian Press.

“We have an opportunity to create a much better retail business.”

The deal, she added, will set the stage for the company to turn its attention to North America.

“It really allows us to focus on North America, where I see a tremendous amount of opportunity to create real operational improvements,” she said.

Beyond the merger of Karstadt and Galeria Kaufhof, the deal will also involve the European arm of HBC’s Saks Off Fifth brand, Hudson’s Bay in the Netherlands, Karstadt sports stores, Signa’s Galeria INNO stores and both companies’ food and catering businesses.

The agreement will also include the creation of a 50-50 real estate venture with 3.25 billion euros in assets.

HBC will nab a 49.99 per cent interest in the combined businesses, while the new company will be led by Stephan Fanderl, Karstadt’s chief executive.

HBC’s operations in North America have come under fire in recent months, in part because of outspoken stakeholder Jonathan Litt.

The chief investment officer and founder of activist investor Land & Buildings Investment Management has complained that HBC is really a real estate company, not a retailer.

He has blamed HBC for failing to outline a plan to unlock the “substantial real estate value trapped in the company.”

Foulkes said at the company’s annual general meeting in June that the company was looking at selling certain properties, but was not in a hurry to sell everything quickly.

On Tuesday, she said “everything is always on the table,” but that now she is focusing on ”driving the banners that we do have…I do see a lot of opportunity to get more value out of them.”

HBC bought Kaufhof from German retailer Metro AG for three billion euros ($4.6 billion) in 2015, years before Foulkes joined the company with ambitious plans to turn around weak sales and sizable losses.

Signa made an unsolicited offer late last year to buy HBC’s German operations, but withdrew it earlier this year after it was rejected by the HBC board because it undervalued the business.

Then, in July, HBC confirmed it was in talks again with the company.

HBC said the deal it has struck is still subject to regulator approval in Europe and is expected to close within the next 90 days.

Companies in this story: (TSX:HBC)

Tara Deschamps, The Canadian Press

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