June 24, 2019 / 12:27 PM / 24 days ago

Breakingviews - Metro raid is an opening salvo in longer battle

German retailer Metro AG supermarket in Duesseldorf, Germany March 02, 2018. REUTERS/Thilo Schmuelgen

LONDON (Reuters Breakingviews) - Metro is limbering up for a lengthy battle. The German cash-and-carry retailer on Sunday rebuffed an offer from two investors valuing the company at 5.8 billion euros. Though the offer looks stingy, Metro CEO Olaf Koch will have to convince more investors his turnaround plan is working to see off a more serious assault.

Czech investor Daniel Kretinsky and his Slovak partner Patrik Tkac first bought into the ailing German company in August last year. Their acquisition vehicle, EP Global Commerce, now owns at least 11%. Its offer has the support of 15% shareholder Haniel and retailer Ceconomy, which has granted them an option over a further 5%.

To get full control of Metro, however, the pair would need shareholders representing three-quarters of the company to accept the bid. That looks a stretch without the agreement of long-term investors Meridian Foundation and Beisheim, which own 20% between them.

The offer of 16 euros per ordinary Metro share – a premium of just 3% over the company’s closing share price on Friday – looks too low to win over wavering investors. Granted, Metro’s shares are a third higher than when Kretinsky and Tkac sparked takeover speculation by taking a stake in August last year. But the shares have been volatile since. Besides, with net debt of 2.7 billion euros, the proposed offer is 5.9 times Metro’s forecast EBITDA for 2019, according to Refinitiv. Smaller Polish rival Eurocash trades on 10.8 times.

To see off the raiders, however, Metro needs to win more supporters for a standalone strategy. The group has suffered from falling revenue in western Europe and Russia where a ban on European food imports dented the outlook last year.

Koch, who has been CEO since 2012, is selling Metro’s Real hypermarkets in Germany as well as its Chinese business, which could have an enterprise value of $1.5 billion to $2 billion, people familiar with the matter told Reuters in March. If completed, those two deals could unlock some value. The challenge will be persuading Metro shareholders to keep their nerve despite the assault.

Breakingviews

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