Karstadt flags up rents dealbreaker

The billionaire investor expected to buy Germany’s Karstadt department stores has said the deal could fail without an agreement about rents the chain pays to its main landlord.

Nicolas Berggruen begins talks with Highstreet, a Goldman Sachs-led consortium that owns most of the properties housing Karstadt’s stores. Mr Berggruen wants further rent reductions.

Karstadt had “suffered enough” and needed to secure its future, Mr Berggruen said. He said he could walk away from a deal: “We do not want to put this company under but we want it to be viable.”

Karstadt, formerly owned by retail and travel group Arcandor, has been in administration for more than a year. A creditor committee and the administrator favour a deal with Mr Berggruen, but the sale contract depends upon agreement between Mr Berggruen and Highstreet, which itself was in the running to buy Karstadt.

Highstreet has offered two rounds of rent concessions. People close to the consortium say that would mean Karstadt paying rents this year more than 20 per cent below pre-insolvency levels. Highstreet deemed the concessions a “final total”.

Mr Berggruen said the distance between his group and Highstreet was “not too far” and liquidation of Karstadt was not in Highstreet’s interests: “These stores are worth more alive than dead.”

Highstreet doubts the strategy put forward by Mr Berggruen, for whom Karstadt would be a first substantial retail deal.

Maurizio Borletti, an Italian retail entrepreneur who is part of the Highstreet group, said Mr Berggruen did not have a “convincing, long-term growth concept” for Karstadt. Highstreet’s own bid remained “an alternative to liquidation,” Mr Borletti said.

Mr Berggruen said Karstadt, which before insolvency had €4bn ($4.8bn) of annual revenues, could recover in spite of long erosion of department stores’ market share in Germany. The US-based investor has pledged to maintain Karstadt’s 25,000 jobs and its 120 stores as well as bringing in BCBG Max Azria Group, the US fashion house. “Karstadt was not managed in the optimal conditions . . .  If you put in some imagination and creativity and focus . . . the business can prosper.”

Mr Berggruen said his investment group could take a long-term view of Karstadt’s prospects. “I don’t think conventional institutional investors would touch this,” he said.

The son of a well-known German art collector, Mr Berggruen has been dubbed a “homeless billionaire” for his habit of living in hotels. Other recent deals involving Mr Berggruen include the takeover of Pearl Assurance in the UK and a deal to buy into Spain’s Prisa media group.

No financial details have been discussed but Mr Berggruen’s offer is thought to involve a bid of about €70m and €240m of capital expenditure over three years, said Jürgen Elfers, a Commerzbank analyst. Mr Berggruen said Karstadt was “currently profitable”.