* Market conditions not right for Kaufhof sale
* Q4 sales 19.5 bln euros, vs forecast 19.3 bln
* Christmas disappointing despite good finish
* Reiterates 2011 EBIT guidance
* Shares up 3.8 percent
(Adds comments by Benko and Berggruen, detail on Kaufhof)
By Victoria Bryan
GENEVA, Jan 17 German group Metro
, the world's fourth-biggest retailer, has suspended
the sale of its Kaufhof department stores, valued at 2-3 billion
euros ($2.5-3.8 billion), saying potential buyers were
struggling to raise funds.
"We have always stressed that a sale must reflect the
potential of Galeria Kaufhof. Currently, the earnings potential
can be better tapped by us than by a sale", chief executive Olaf
Koch said on Tuesday.
Those interested in Kaufhof were Austrian property investor
Rene Benko, bidding via his investment vehicle Signa, and
Nicolas Berggruen, the plane-hopping investor known as the
'homeless billionaire' and who also owns rival chain Karstadt.
The move came after financing conditions in the retail
sector became tougher, prompting relief among investors that
Metro did not try to push through a sale at any price. "The
present situation on the capital markets does not offer suitable
conditions for such an important transaction," Koch said.
"We see it as positive that Metro can wait for a better
environment and is counting on a good result rather than
short-term sale proceeds," LBBW analyst Barbara Ambrus said.
Metro shares were up 3.8 percent at 28.31 euros by 1224 GMT,
making it one of the top 10 gainers among European blue-chip
Retailers have been suffering as rising prices, muted wage
growth and austerity measures resulting from the euro zone debt
crisis, squeeze disposable incomes across much of Europe.
Kesa Electricals late last year paid a 50 million
pound ($77 million) dowry to a private equity firm to take the
loss-making Comet business off its hands, just as the list of
retail casualties in Britain grows.
In Germany, the family of Douglas CEO Henning
Kreke has approached financial investors to help it take the
German fragrance-to-jewellery retailer private.
DEPARTMENT STORE WOES
Metro started informal talks with investors more than six
months ago, under former CEO Eckhard Cordes, over both Kaufhof
and its Real chain of hypermarkets.
With few synergies between Metro's businesses, the plan was
to sell off these assets and focus on its cash and carry and
electrical goods operations before eventually, perhaps, spinning
off the latter as well.
Talks dragged on, partly because of a probe into
possible money-laundering by Signa and partly due to concern
over competition between Berggruen's Karstadt and Kaufhof.
A banker who advises European retail companies said
financing the purchase of a department store business was
challenging because the sector has performed poorly historically
compared with speciality retailers, which focus on a narrower
Metro said it was not changing its portfolio strategy,
leaving the door open for a sale of Kaufhof at a later date,
which also left the bidders sounding hopeful.
"Postponed is not abandoned," a spokesman for Benko cited
the investor as saying, while a spokesman for Berggruen said:
"We are still convinced by the concept of department stores in
Analysts expected a sale of Kaufhof could result in a
special dividend, which would be especially welcome for top
shareholder Haniel after Moody's in November cut its rating
outlook for the family-owned investment firm.
Underlining the tough retail environment, Metro also said
fourth-quarter sales at Kaufhof dropped 4.6 percent, while
overall group sales fell 1.3 percent to 19.5 billion euros
($24.7 billion). That compared with a forecast for 19.3 billion
euros in a Reuters poll.
"Despite a good finish, the Christmas business was
disappointing overall," Koch said.
Metro is exposed to discretionary spending through its
consumer electronics chain MediaMarkt-Saturn, while unseasonably
warm weather has slowed sales of winter clothing at Kaufhof.
Kaufhof sales have been virtually flat since 2005, with the
German retail market offering few opportunities for growth.
Metro issued a profit warning in early December due to weak
Christmas trading. On Tuesday, it reiterated guidance for 2011
earnings to fall slightly below the 2.4 billion euros it
reported for 2010.
Last week, British group Tesco, the world's
third-biggest retailer, issued its first profit warning in
Also on Tuesday, Dixons Retail, Europe's No. 2
electrical goods retailer, said sales declines accelerated over
($1 = 0.7891 euro = 0.6524 pound)
(Additional reporting by Matthias Inverardi, Mark Potter,
Victoria Howley and Daniela Pegna; Writing by Victoria Bryan and
Maria Sheahan; Editing by Dan Lalor)