BERLIN — The Arcandor AG debacle continued to deepen Friday, as the company’s stock fell 27 percent in early trading after registering a similar decline Thursday.
The stock has lost more than 90 percent of its value in the last year. After hitting an all-time low of 1.58 euros, or $2.31, earlier in the day Friday, shares dropped 1.86 euros, or $2.76. The 52-week high was 24.19 euros, or $35.33. All dollar figures are converted from the euro at the current exchange rate.
Arcandor — the parent company of the ailing Karstadt Warenhaus GmbH department store chain, the Primondo (Quelle, etc.) catalogue business and Thomas Cook Group plc travel — has been the subject of ongoing speculation for months. Inflated costs and deflated consumer confidence not only pushed the Karstadt division into the red in the third quarter, but dragged down the group’s third-quarter earnings before interest, tax, depreciation and amortization as well as Arcandor’s earnings forecast for all of fiscal 2008-09.
Though the company has maintained that it is solidly capitalized, both share price and shareholder confidence further plummeted midmonth when credit insurer Euler Hermes AG capped default guarantees to the group’s suppliers, raising concerns over deliveries for the upcoming holiday season. Concern also rose dramatically as negotiations with banks over refinancing a portion of a credit facility ran into unexpected delays.
This most recent round of turbulence was prompted by contradictory communication from Arcandor regarding the successful conclusion of its refinancing deal. Shares rose 20 percent on Sept. 24 after Arcandor said it had reached an agreement with its house banks over a refinancing concept, adding that credit insurers Atradius, Coface, Euler Hermes and Zurich would provide the necessary credit lines to support the group’s business. Most importantly, a company spokesman stated that parts of Thomas Cook would not be put up as a guarantee for the deal.
Twelve hours later, however, after the stock market closed, Arcandor said the new deal might require a change in its holding structure, “including the possibility of raising funds by reducing the level of ownership in Karstadt Warenhaus GmbH and Thomas Cook Group plc.”
Arcandor has a 52 percent holding in Thomas Cook, which generates 60 percent of group sales and is the only consistently profitable division. If Arcandor’s stake falls below 50 percent, Thomas Cook will have to be deconsolidated, effectively cutting Arcandor group turnover in half.
As for Karstadt, there’s been no progress in the group’s attempts to establish international partnerships for the 90 department store and 28 sporting goods stores. Arcandor said negotiations with English retailer Debenhams have gotten nowhere to date, nor have the group’s much-publicized plans for an alliance with La Rinascente and Printemps for its premium houses yielded results.
Besides setting off a dramatic downward spiral, Arcandor’s communications policy has now come under the scrutiny of the German stock authority BaFin. The authority said it is reviewing Arcandor’s announcements as well as stock sales over the last few days as “a matter of routine.” It is not clear if this will lead to an investigation.
The shareholders’ association SdK, however, called for Arcandor chief executive officer Thomas Middelhoff’s resignation. “There must be a reaction. Middelhoff’s strategy has failed and there’s no trust left,” said SdK spokesman Lothar Gries.
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