February 7, 2018 / 3:10 PM / 4 months ago

Hudson's Bay says it turns down Signa's offer for Kaufhof chain

(Reuters) - Hudson’s Bay Co said on Wednesday it has rejected Austrian property and retail group Signa Holding GmbH’s 3 billion euro bid ($3.7 billion) for Hudson’s Bay’s Kaufhof unit, Germany’s largest retail chain.

FILE PHOTO - A woman holds a Hudson's Bay shopping bag in front of the Hudson's Bay Company (HBC) flagship department store in Toronto January 27, 2014. REUTERS/Mark Blinch

Hudson’s Bay also said Signa had withdrawn its offer for Kaufhof.

The potential deal would have combined Germany’s two largest department store operators: Kaufhof and Signa’s Karstadt. The rejection comes as Hudson’s Bay named veteran CVS Health Corp executive Helena Foulkes this week as its chief executive officer.

Hudson’s Bay, which also owns the Saks Fifth Avenue luxury department store chain, said in November it would review Signa’s offer for Kaufhof, but also called it incomplete, non-binding and unsolicited, with no evidence of financing.

“The board has unanimously concluded that Signa’s proposal is not in the best interest of Hudson’s Bay shareholders. It significantly undervalues our German business and related real estate assets and is not supported by sufficient certainty of financing to warrant further consideration at this time,” said David Leith, lead independent director of Hudson’s Bay’s board.

Signa withdrew its offer after it became clear during a meeting between Hudson’s Bay Executive Chairman Richard Baker and Signa Chairman René Benko in New York on Tuesday that both sides could not successfully negotiate a deal, according to sources who requested anonymity.

A Signa spokesman declined to comment. Reuters reported on Hudson’s Bay’s rejection of Signa’s offer for Kaufhof earlier on Wednesday.

Signa tried to buy Kaufhof in 2015, but Hudson’s Bay outbid it by paying 2.5 billion euros including debt for Kaufhof as well as its Belgian subsidiary.

Since then, Kaufhof’s finances have deteriorated to the point where vendors are finding it more difficult to find trade credit insurance to make shipments.

Hudson’s Bay financed the Kaufhof acquisition by using a joint venture that acquired Kaufhof’s real estate and became its landlord. Hudson’s Bay kept a 63 percent stake in the joint venture, and sold the rest to major investors, including Simon Property Group Inc.

The financial engineering backfired as Kaufhof struggled to cope with higher rents that the joint venture imposed as well as declining foot traffic in stores.

However, Hudson’s Bay bolstered its financial position to support Kaufhof, agreeing in October to sell its flagship Lord & Taylor building in New York to WeWork for C$850 million ($680 million). Private equity firm Rhone Capital invested an additional $500 million as part of the deal.

Privately held Signa, founded 17 years ago by property developer Rene Benko, now runs more than 125 retail locations in northern Europe, generating annual revenue of about 3.8 billion euros ($4.67 billion), according to its website. It owns a big real estate portfolio with a gross asset value of more than 10 billion euros.

Signa bought Karstadt from the brink of bankruptcy in 2014 for the nominal consideration of just one euro from its majority owner Nicolas Berggruen, son of an international art dealer.

Signa restructured Karstadt by realigning its offerings closer to the tastes of German consumers, cutting costs and making operations more efficient.

Reporting by Greg Roumeliotis in New York; Additional reporting by Tom Käckenhoff in Düsseldorf; Editing by Jeffrey Benkoe

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