Metro puts struggling Real hypermarket chain on the block

Published:Friday, September 14, 2018
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BERLIN (Reuters) - German retailer Metro AG plans to sell its struggling Real hypermarkets and is confident of interest in the chain, though bankers played down talk it might attract Amazon and a price tag of up to 1 billion euros ($1.2 billion).

FILE PHOTO: German retailer Metro AG sign is seen on the headquarters in Duesseldorf, Germany March 02, 2018. REUTERS/Thilo Schmuelgen/File Photo

Industry bankers contacted by Reuters said private equity firms were the most likely bidders and that Metro might have to effectively pay a buyer to take the chain off its hands.

Foreign players have shunned the cut-throat German grocery market, which is dominated by discounters Aldi and Lidl, since Walmart took a loss of $1 billion when it sold its stores to Metro and pulled out of the country in 2006.

Metro, which has previously tried to offload Real, says it wants to focus on its wholesale business which serves independent traders, hotels and restaurants and is more shielded from ecommerce, while doing more delivery to customers.

“The fact is that we repeatedly had expressions of interest shows that we can take up the journey again,” Metro’s chief executive Olaf Koch told journalists on Friday. He said the sales process could take up to eight months.

Large European retailers such as Ahold, Carrefour, Auchan, Tesco are unlikely to bid for Real, people familiar with the industry said.

However, the chain may attract interest from investors such as Apollo-backed Alteri, owner of Babywalz and CBR Fashion Group or from other private equity firms.

When Metro tried to sell Real in 2012, a consortium of Apollo and Towerbrook made an offer, as did KKR, but Metro at the time opted to restructure the German Real operations on its own.

Buyout groups, have had mixed results with retail in Germany and several investments - such as Sun Capital’s Neckermann investment - turned sour, limiting the appetite for new adventures.

Some analysts speculated Amazon could be interested in food retailers in Germany, its second biggest market after the United States, after its acquisition of U.S. grocery chain Whole Foods last year.

“Germany’s grocery ecommerce is very underdeveloped and Germany is a very important country for Amazon,” said Bernstein analyst Bruno Monteyne, adding a price of around 1 billion euros would be no hurdle for the ecommerce giant.

An Amazon spokesman declined to comment, while the buyout groups declined to comment or were not immediately available for comment.

FILE PHOTO: German retailer Metro AG supermarket in Duesseldorf, Germany March 02, 2018. REUTERS/Thilo Schmuelgen/File Photo

Bankers, however, do not view Real as high on Amazon’s shopping list and see a much lower price. One said Real could be sold for “near zero at best”, while another said Metro may have to pay to offload the business.

Koch said selling Real was not connected to Daniel Kretinsky buying a stake in Metro last month, although he said the company had met the Czech billionaire, whose move prompted speculation he could make a full bid and take Metro private.

Analysts said a financial investor might be interested in the real estate value of the 65 hypermarkets that Real owns, while other options could be a sale of parcels of stores to other chains like Lidl or dominant supermarket group Edeka.

However, peers need to tread carefully to avoid anti-trust concerns like those that dogged Edeka’s purchase of loss-making chain Kaiser’s in 2015.

One of the bankers said fellow German supermarket chain Kaufland, held by Lidl-owner Schwarz Group, could show an interest in some sites. Koch told journalists the aim was to sell Real as a whole rather than as a bundle of stores.

FALLING SALES

Real posted a loss and saw sales slide 7.2 percent in the latest quarter, which it blamed on an early Easter and unusually hot weather.

Koch said earlier talks with interested parties had not come at the right time as Metro restructured the business, including a deal on lower pay for new hires.

Trade union Verdi criticized Metro’s treatment of Real’s 34,000 workers and said the company should be sold as a whole business to a series buyer.

“First the workforce forgoed part of their wages (..) then the company shredded the collective bargaining agreement and now Real is going to be sold,” said Stefanie Nutzenberger from Verdi.

Metro has already sold its Kaufhof department stores and split from consumer electronics retailer Ceconomy.

Real, which sold its stores in eastern Europe to French retailer Auchan in 2012, has suffered from tough competition from the advance of online players like Amazon.

It has sought to build up an online grocery business in recent years, with ecommerce still only accounting for 2 percent of sales but growing fast. Its total sales fell by 3.1 percent to 7.2 billion euros in the 2016/17 financial year.

($1 = 0.8540 euros)

Additional reporting by Matthias Inverardi. Writing by Caroline Copley. Editing by Alexander Smith and Mark Potter

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