Bloomberg News

Metro Said to Hire Deutsche Bank to Advise on Saturn Unit

July 18, 2014

Metro CEO Olaf Koch

Olaf Koch, chief executive officer of Metro Group AG. Koch is trying to effect a turnaround at Dusseldorf-based Metro, which also operates the Galeria Kaufhof department stores. Photographer: Hannelore Foerster/Bloomberg

Metro AG (MEO), Germany’s biggest retailer, hired Deutsche Bank AG (DBK) to explore options for its consumer-electronics division, according to two people with direct knowledge of the matter.

Alternatives may include a sale, spinoff or initial public offering of the Media-Saturn unit, said the people, who asked not to be identified because the matter is private. The division, which includes the Media Markt and Saturn chains, could be valued at about 5 billion euros ($6.8 billion), one of the people said.

Metro made the appointment as it seeks to end a deadlock with Media-Saturn’s co-founder, Erich Kellerhals, over the influence he still wields, the people said.

Kellerhals, who owns a 22 percent stake in Media-Saturn, is working with Morgan Stanley (MS:US) to seek a solution, according to the people. It’s the first time that both sides have made a serious effort to agree on a way forward, they said.

Once Deutsche Bank and Morgan Stanley have completed their assessment, they are likely to brief Metro’s supervisory board on their conclusions and proposals, one of the people said.

“If Kellerhals pays a premium for the business he doesn’t already own, it gets rid of a business that’s been a distraction” for Metro, said Raghav Gupta-Chaudhary, an analyst at Nomura Securities in London. Nomura values the Media-Saturn chain at 3 billion euros, and “anything above that is a positive.”

Customers still want to go to electronics outlets to feel the weight of a camera or laptop, or compare items side by side, said Gupta-Chaudhary, who recommends buying Metro shares.

“There’s a future for the stores,” he said. “Whether they need to be 30,000 square feet is another question.”

Ruediger Stahlschmidt, a spokesman for Metro, declined to comment. Representatives of Kellerhals’s investment firm, Convergenta Invest, said they couldn’t immediately comment. A spokeswoman for Deutsche Bank and a spokesman for Morgan Stanley declined to comment.

Possible Spinoff?

A spinoff of the unit is the most probable outcome, according to one of the people. The first meeting between Metro management and Kellerhals could happen in the next few weeks, one of the people said, adding that there is no guarantee that an agreement would be reached.

Metro fell 1 percent to 30.75 euros as of 12:29 p.m. in Frankfurt trading. The shares have dropped 13 percent this year.

Chief Executive Officer Olaf Koch is trying to effect a turnaround at Dusseldorf-based Metro, which also operates the Galeria Kaufhof department stores. The CEO, in his post since the start of 2012, is trying to modernize Kaufhof, reposition Media-Saturn toward e-commerce and take its Russian Cash & Carry wholesale unit public amid adverse market conditions.

Sales at Media-Saturn stores open at least a year fell 3.7 percent in the quarter through March. Analysts surveyed by Bloomberg expect on average that Metro’s operating profit this year will decline 15 percent to 1.7 billion euros.

Kellerhals, who founded the Media-Saturn business in the late 1970s and sold it to a predecessor company of Metro in the late 1980s, has been agitating for change at the division amid competition from Amazon.com Inc. and others. The stores sell everything from televisions and coffee makers to washing machines.

In May, Kellerhals successfully pushed for the replacement of unit head Horst Norberg, who left May 6. His successor, Pieter Haas, is seeking to boost online sales.

At a dinner with journalists in Dusseldorf July 9, Koch said he opposes an immediate spinoff of Media-Saturn.

To contact the reporters on this story: Aaron Kirchfeld in London at akirchfeld@bloomberg.net; Aaron Ricadela in Frankfurt at aricadela@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Paul Jarvis, Tom Lavell


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