By Friedrich Geiger and Eyk Henning
BERLIN--German retailer Metro AG plans to split in two, listing
its wholesale and food and consumer-electronics businesses
separately in the hope of boosting their sales growth and profits,
the company said Wednesday.
Metro said on Wednesday that no final decision has been taken on
a demerger which would require approval from stockholders though
the plan has the support of senior management and the group's main
shareholders.
Investors reacted enthusiastically to the proposal, with shares
in Metro rising more than 13% in early afternoon trading on the
Frankfurt bourse, boosting the group's market capitalization to
around EUR9.09 billion ($10.30 billion).
Metro has been struggling with declining revenues and volatile
profits for the past five years, along with the complexity of its
sprawling operations.
Chief Executive Olaf Koch has attempted to tackle the issue in
recent years by divesting some businesses, including by selling
department-store chain Galeria Kaufhof to Canada's Hudson Bay Co.
in 2015. He has also exited some Asian operations.
But the current plan of splitting the company in two parts,
which requires approval from the supervisory board and
shareholders, is the most dramatic move Metro has undertaken to
simplify its empire of more than 2,000 wholesale food stores,
supermarkets and electronics outlets located throughout Europe,
Asia and Africa.
Annual revenue at the electronics business was EUR21.7 billion
for the 12 months ended September 2015, while revenue at the food
operations exceeded EUR37 billion.
The split could also shield investors in Metro's wholesaling and
supermarket business from a long-running dispute over strategy at
the consumer-electronics unit. The unit, which trades under the
Saturn and Media Markt brands, is part owned by Media Markt's
billionaire founder Erich Kellerhals, who has clashed for years
with management over day-to-day operations and longer-term
strategy.
While Metro plans to retain its 80% stake in the
consumer-electronics unit, held via holding company, the wholesale
business and supermarkets would be spun off as a separate entity
with a new name, the company said. Shareholders would receive
shares in the new company in proportion to their existing stake in
Metro.
"I feel very strongly that a split in two independent and
focused businesses would be in the best interest of all
stakeholders, as it would facilitate a significant opportunity for
faster and more profitable growth," said Jürgen Steinemann,
Chairman of Metro's supervisory board.
The group's three main shareholders--Franz Haniel & Cie.
GmbH, the Schmidt-Ruthenbeck family and the Prof. Otto Beisheim
foundation --support the plans, Metro said.
"We will closely monitor further actions, but don't think the
transaction will affect our rights as a shareholder in the
Media-Saturn holding company," a spokesman for Mr. Kellerhals
said.
Metro's Mr. Koch said Mr. Kellerhals "has no potential to
interfere with this transaction" because the split takes place at
the group level, where Mr. Kellerhals isn't a major
shareholder.
He added that the two businesses--food and electronics--are so
different that they would be easier to steer if they were
independent.
A split could also open new doors to future mergers and
acquisitions, while giving investors a choice of which part of the
existing Metro business they wanted to invest in, Mr. Koch said. A
demerger would likely create new jobs, rather than lead to job
losses because both businesses should experience new growth, he
said.
Some analysts were less sure about the prospects for the
stand-alone businesses. Metro faces tough trading conditions,
notably in important foreign markets like Russia, whose economy is
shrinking, and China, where growth has slowed recently, said
brokerage firm Market Securities.
Mr. Koch, who said the company would like the listings to be
completed by mid-2017, would likely run the wholesale and food
unit. Pieter Haas, chief executive of the Media Markt-Saturn unit
and a management board member of Metro, would likely run the
consumer-electronics business, Metro said.
The company has retained investment bank J.P. Morgan Chase to
advise on the transaction, a person familiar with the matter
said.
Write to Friedrich Geiger at friedrich.geiger@wsj.com
Corrections & Amplifications
Erich Kellerhals is the founder of German consumer-electronics
retailer Media Markt. In a previous article, Mr. Kellerhals was
mistakenly referred to as a founder of its parent company, retail
group Metro AG.
(END) Dow Jones Newswires
March 30, 2016 10:18 ET (14:18 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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