Signa Group says it has the wherewithal and market expertise to quickly pull off a deal to buy Galeria Kaufhof from Hudson’s Bay Co.
Signa founder and chairman René Benko on Monday sent a letter to Richard Baker, executive chairman, governor and acting ceo of HBC, indicating that Signa has “already lined up full financing and would require limited due diligence, allowing us to move forward with a mutually beneficial transaction expeditiously, in a matter of weeks.”
Signa is also pressing for a meeting with Baker and his board members to discuss the offer and wants a response to the letter by Nov. 15. Signa said it could sign a deal within four to six weeks.

But apparently, HBC is reluctant to deal with Benko. “There are still a lot of question marks,” said one source close to the situation, commenting on Signa’s ability to finance a satisfactory deal.

Similarly,  another source familiar with the German retail market, sounded skeptical of Benko’s offer, saying, “Show me the money.”

Last week, Hudson’s Bay Co. acknowledged receipt of Signa’s offer for Kaufhof and related real estate holdings, but dismissed the offer as “incomplete, non-binding and unsolicited and showing no evidence of financing.”

Benko said HBC’s comments regarding the credibility of its offer was “particularly puzzling as our offer is based on an in-depth analysis of public information and our great familiarity with the Kaufhof assets.”

On Tuesday, HBC had no comment to Benko’s letter and referred a media inquiry to HBC’s response of last week, which aside from characterizing Signa’s offer as incomplete, said that “consistent with its fiduciary responsibility, the HBC board intends to review the offer in due course, and cautions that the offer is subject to many assumptions, conditions and contingencies.”

Signa is offering approximately 3 billion euros for the Kaufhof retail chain and its real estate holdings, and says Kaufhof has an enterprise value of 375 million euros. Kaufhof has 97 stores in Germany and 16 in Belgium under the Galeria Inno name.

Kaufhof and Signa-owned Karstadt are Germany’s two leading department store chains. They compete head-to-head, and have been in and out of merger talks for years.

Signa is considered Austria’s largest privately owned real estate company.

HBC isn’t likely to be anxious to quickly sell Kaufhof considering it’s only been two years since the company bought Kaufhof, related real estate holdings and Galeria Inno in Belgium for $2.7 billion from Metro AG. HBC beat out Benko’s attempts to buy Kaufhof and  the deal lifted HBC’s volume by 25 percent and recast the company as an international retailer.  It also put a halt to merger talks between Kaufhof and Karstadt that had been happening periodically for years.

HBC is currently upgrading and renovating certain Kaufhof locations, including opening Sephora shops inside Kaufhof stores. HBC’s stake in Germany is growing further with the addition of Saks Off 5th locations, though Kaufhof has been performing under HBC’s expectations.

According to Benko, a combination of Kaufhof and Karstadt would accelerate growth and repositioning efforts at the two department store chains. Karstadt is Kaufhof’s “most suitable strategic partner,” he said.
Benko added that a combination of Kaufhof and Karstadt would create a company generating over 12 billion euro annually, with a net asset value of 5.5 billion euro, and expected profit of about 1 billion euro after taxes for fiscal 2017.
“We reconfirm that we have sufficient capital and liquidity to acquire, invest in and grow Kaufhof in the future,” Benko wrote.
His letter said the proposed transaction would be funded with cash on hand, existing unconditional capital commitments by shareholders, and borrowings. However, it is believed that HBC feels it needs additional financial information from Signa before considering the offer.
Signa said it was “confident” it would get a loan from LBBW of about 1.34 billion euros, and that the remainder of the acquisition would be funded through a capital increase last October and a 700 million euro approved bank loan from Austrian Raiffeisen Bank International. Signa also has about 400 million in liquidity in a cash account, the company said.
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