Canada's HBC, US Simon take over Galeria Kaufhof real estate for €2.4b

Hudson's Bay Company (HBC), one of North America’s oldest firms, has reached agreement to buy Germany’s 135-year old Galeria Kaufhof department store chain and its Belgian unit Immo in a deal valued at over €2.8 bn, including debt.

HBC, a major retail business in North America and the operator of Saks Fifth Avenue, said it would finance the acquisition through the sale of at least 40 of Kaufhof’s owned or partially owned properties to its US real estate joint venture with Simon Property Group, Simon-HBC JV, for at least €2.4 bn.

Under the deal, Toronto-based HBC is taking over 103 Galeria Kaufhof stores in Germany from Metro Group, including 59 properties offering 760,000 m2 in prime inner-city locations that are part of the Galeria Real Estate portfolio.

In addition, HBC is acquiring 16 Sportarena stores, 16 Galeria Inno department stores located in Belgium, as well as various logistics centres, warehouses and other properties, and the long-standing Galeria Kaufhof head office in Cologne.

The Kaufhof retail business generated sales of €3.1 bn during the 12-month period ended March 31, 2015.

Up for sale for a long time
Metro had long been trying to sell Galeria Kaufhof, Germany's largest department store chain, in an attempt to focus on its wholesale business Metro Cash & Carry, its consumer electronics division Media-Saturn and its hypermarket chain Real.

In 2012 the German retail group suspended negotiations with interested parties because of worsening conditions on the financial markets. In 2014 the Galeria Kaufhof operating and property businesses were combined in a single platform operating under the name of Galeria Holding.

'Not only has HBC submitted the best offer in terms of a secure future for Galeria Kaufhof, it has also made a valuable bid for our shareholders,' said Olaf Koch, chairman of Metro's asset management board.

The transaction is expected to close by the end of the third quarter of 2015.

The deal will generate a positive cashflow for Metro of around €1.6 bn and significantly reduce its net debt by around €2.7 bn. The retail giant expects a positive EBIT effect of around €0.7 bn from the transaction.

As part of the agreement, HBC will continue to operate Galeria Kaufhof, Inno and Sportarena under their current brand banners. It will also maintain the group's 21,500 workforce in place, including the management team.

Richard Baker, HBC’s Governor and executive chairman, said, 'We have been carefully surveying the European retail landscape for many years for a potential expansion opportunity and have watched Galeria Kaufhof build on its exceptional real estate to become the #1 department store in Germany.'

Jerry Storch, CEO of HBC, added: 'This is a strong foundation to explore additional opportunities for growth throughout the Continent.'

BofA Merrill Lynch is acting as exclusive financial advisor to HBC on the transaction. Willkie Farr & Gallagher is acting as M&A legal counsel, and Stikeman Elliott is acting as company legal counsel. Metro is being advised by JP Morgan and Deutsche Bank and Clifford Chance is serving as legal counsel.