Hudson’s Bay to merge Kaufhof with German rival Karstadt

Hudson’s Bay, North America’s oldest company, is rethinking its strategy in Europe three years after it launched in the continent, striking a deal with an Austrian property billionaire that will bring together two of the biggest names in German retail.

The Toronto-listed group, which owns the upmarket US chain Saks Fifth Avenue, said on Tuesday that it had agreed to merge its Kaufhof department store group with local rival Karstadt, controlled by René Benko’s Signa Holding.

The tie-up will create a group with more than €5bn in combined revenues. As part of the deal, Signa will also acquire 50 per cent stake in the Canadian company’s German real estate assets, which it valued at €3.25bn.

It is the latest move by Hudson’s Bay, which appointed retail veteran Helena Foulkes as chief executive in February, to adjust to fierce online competition and strengthen its balance sheet amid falling sales and mounting losses.

If another opportunity arises that can unlock shareholder value, I’d be open to those

Ms Foulkes told the Financial Times that she believed the deal meant Hudson’s Bay had done “most of the heavy lifting” in revamping its corporate structure, although she added that “everything is on the table” for the group.

The company has faced calls from activist investor Land & Buildings Investment Management to dispose of its property assets. The activists pointed to the group’s under-performing share price, arguing that other retailers including Macy’s and Nordstrom had better adjusted their strategies.

“If another opportunity arises that can unlock shareholder value, I’d be open to those,” Ms Foulkes added.

Shares in Hudson’s Bay rose more than 10 per cent on news of the deal.

Hudson’s Bay launched in Europe in 2015 when it won the battle for Galeria Kaufhof, one of the biggest names on the German high street, after seeing off interest from Mr Benko to buy it for €2.8bn.

The transaction on Tuesday reduces the Canadian company’s exposure to Europe. Ms Foulkes said it would allow the group to “place even greater attention” on its North American assets, which include Saks, Lord & Taylor and the eponymous retail chain in Canada. In recent months Hudson’s Bay has agreed to sell its Lord & Taylor flagship building on New York’s Fifth Avenue to shared workspace provider WeWork for $850m.

Ms Foulkes said the European tie-up with Signa would leave the enlarged group “a much stronger retailer, together”.

It is the latest sign of how global retail is being upended by ecommerce. A series of recent restructurings include Sports Direct’s purchase of the UK’s House of Fraser department store chain after it collapsed into administration in the summer.

Amazon is the dominant online retailer in Germany; last year its market place accounted for 46 per cent of all online sales in the country.

Germany’s service sector union Verdi said it was opposing the deal, fearing heavy job losses. Hudson’s Bay and Signa operate 215 department stores and 28 sports shops between them, employing 32,000 workers.

The companies did not disclose the number of stores or jobs at risk as part of the deal, although one person familiar with the agreement said between 15 and 20 stores were likely to close. The final decision would hinge on terms agreed with the trade unions.

“There is room for both department store chains in Germany,” said Verdi board member Stefanie Nutzenberger.

The combined retail operations in Germany will be led by Karstadt chief executive Stephan Fanderl. Hudson’s Bay will hold a minority stake of 49.99 per cent in the business.

Hudson’s Bay will net proceeds of €411m, which it will use to pay down debt.

Net proceeds from deal with Signa and the implied value of its German real estate assets were worth C$8.71 per share, the group added. The merger requires the approval of European antitrust watchdogs.