HBC to merge its German retail stores

Deal finally worked out for joint operation with its biggest European competitor

TORONTO — Hudson’s Bay Co. has struck a deal to merge its German department stores with its biggest rival in the European market.

The Toronto-based retailer, which owns Galeria Kaufhof, announced Tuesday an agreement with Signa Retail Holdings, the Austrian-based brand behind Karstadt, a competitor department store on the continent.

HBC chief executive Helena Foulkes said the deal will earn HBC $616 million, which will be funnelled into reducing debt.

“It has been a tough German market and that has been true for every player in the market, so this deal allows both of us to be stronger together,” she told The Canadian Press.

“We have an opportunity to create a much better retail business.”

The deal, she added, will set the stage for the company to turn its attention to North America.

“It really allows us to focus on North America, where I see a tremendous amount of opportunity to create real operational improvements,” she said.

Beyond the merger of Karstadt and Galeria Kaufhof, the deal will also involve the European arm of HBC’s Saks Off Fifth brand, Hudson’s Bay in the Netherlands, Karstadt sports stores, Signa’s Galeria INNO stores and both companies’ food and catering businesses.

The agreement will also include the creation of a 50-50 real estate venture with almost $5 billion in assets (3.25 billion euros).

HBC will nab a 49.99 per cent interest in the combined businesses, while the new company will be led by Stephan Fanderl, Karstadt’s chief executive.

HBC’s operations in North America have come under fire in recent months, in part because of outspoken stakeholder Jonathan Litt.

Foulkes said at the company’s annual general meeting in June that the company was looking at selling certain properties, but was not in a hurry to sell everything quickly. Tuesday, she said “everything is always on the table,” but that now she is focusing on “driving the banners that we do have . ... I do see a lot of opportunity to get more value out of them.”

HBC said the deal it has struck is still subject to regulator approval in Europe and is expected to close within the next 90 days.

The company’s shares gained nearly eight per cent at $11.64 in early afternoon trading on the Toronto Stock Exchange.