LONDON (BLOOMBERG)- Stores are closing across Europe as consumers shift to e-commerce and discounters barge in. Yet a pair of investors is making an audacious takeover bid for Metro AG, valuing the German chain that sells food and other staples from nondescript warehouses at US$6.6 billion (S$8.94 billion).
The offer by Czech billionaire Daniel Kretinsky and his Slovak investment partner Patrik Tkac goes against the grain, but they see an opportunity in Metro's wholesale business model. What they haven't explained is how they plan to turn around a company whose business once included everything from electronics to department stores but now focuses on cash-and-carry outlets in Germany and eastern Europe.
It's not alone among European bricks-and-mortar merchants struggling to contend with the rise of Amazon.com and cut-price chains Lidl and Aldi. In the UK, department-store chain House of Fraser was rescued out of insolvency last year while rival Debenhams was taken over by creditors this year. The parent of debt-burdened French grocer Casino Guichard-Perrachon has sought court protection from lenders, while rival Carrefour is restructuring - announcing a deal over the weekend to sell a majority stake in its China business.
As ordinary investors grow wary of the sector, wealthy individuals are moving in. Kretinsky and Tkac would join the likes of Mike Ashley, the billionaire UK entrepreneur whose Sports Direct International took over House of Fraser. First they'll have to overcome the opposition of Metro's management, which said the unsolicited offer "substantially undervalues" the company.
The 16-euro bid for each ordinary share - a meager 3 per cent premium over Friday's close in Frankfurt - doesn't reflect its value creation plan, the Dusseldorf-based company said in a statement. Metro's ordinary shares have jumped about 40 per cent in the past 12 months.
Kretinsky, who has a net worth of at least US$3 billion, according to the Bloomberg Billionaires Index, has no shortage of ambition. Better known for his investments in energy and media, he acquired a stake in French daily Le Monde last year, adding that to a portfolio that also includes the Sparta Prague soccer team.
Since its creation in 2009, a debt-fueled acquisition spree turned Kretinsky's EPH from a small Czech utility into one of the biggest energy companies in central Europe. It values its assets in the Czech Republic, Slovakia, Germany, Italy, the UK, Hungary and Poland at about 13 billion euros (S$20 billion), according to the latest available data from 2017.
The energy portfolio includes coal and gas power stations, heating utilities, a pipeline that brings Russian gas to western Europe, and two nuclear power plants. As the European Union tries to push its members to lower greenhouse-gas emissions, Kretinsky is betting that lignite assets will be needed to cover the continent's electricity consumption for years to come.
Kretinsky's EP Global Commerce VI holding company, through which he's bidding for Metro, declined to comment on its statement declaring the bid too low.
Kretinsky already has a 10.9 per cent stake, according to data compiled by Bloomberg, meaning the outlay to swallow up the rest of Metro would be about 5.2 billion euros. Haniel Finance Deutschland GmbH, a 15 per cent-holder, has agreed to back the bid. EP Global said it exercised a call option with an affiliate of Ceconomy AG, the electronics retailer that separated from Metro about two years ago but kept a stake, that will transfer the holding to EP Global. In all, that would give the bidders more than 30 per cent of the equity, the data show.
The Czech investor sees Metro as a defensive investment to balance riskier, more volatile bets in energy, Haniel chief executive officer Stephan Gemkow said last year, after Kretinsky acquired a stake in Metro. The company's low valuation attracted him, Gemkow said.
The bidders said the company needs to make changes to its organization, business and processes to keep competing in a changing landscape. If his bid succeeds, Kretinsky will have to complete the sale of its struggling Real banner, one of the last retail operations it held, to transform it into a pure wholesale company. Metro operates in 36 countries and employs more than 150,000 people worldwide.
The bid will be subject to a minimum acceptance threshold, probably in the range of 60 per cent to 75 per cent of Metro's share capital, two people familiar with the matter said. BNP Paribas, Credit Suisse Group and Societe Generale are acting as debt underwriters on the deal.
Metro was founded in 1964 by German billionaire Otto Beisheim with the help of the Haniel and Schmidt-Ruthenbeck families. Beisheim introduced the Cash & Carry concept in Germany, and Metro also once owned the Galeria Kaufhof department store chain, which was sold in 2015 to Hudson's Bay Co.
If the deal is approved, the buyers said they don't plan to close any of the existing Metro stores in Germany or other core markets or substantially reduce headcount. They want to continue with previously announced plans to sell the Chinese unit.
While Metro has struggled in Russia, where sanctions and a low oil price have weighed on the economy, it has done better elsewhere in Eastern Europe, where its operations stretch from Poland to Bulgaria. With his extensive presence in the region, Kretinsky may figure he can upgrade the performance of a company that sells widely to other businesses.