Hudson’s Bay Company acquires Galeria Kaufhof for $2,68 billion

Hudson’s Bay Company announced this morning it will acquire Galeria Holding, parent of the Kaufhof chain of department stores in Germany and Belgium. The deal, worth $2,68 billion (Cdn.) is expected to close by the end of the third fiscal quarter.

Kaufhof has 103 Galeria Kaufhof locations and 16 Sportarena stores. Kaufhof also operates Belgium’s only department store with 16 Galeria INNO locations across the country. Like HBC, Kaufhof has historic buildings in many downtown locations.

The purchase will be financed by the sale of at least 40 of Kaufhof’s owned or partially owned properties to Simon Property Group, a joint venture between HBC and U.S-based Simon Property Group.

The joint-venture partnership between HBC and Simon was announced in February, with a stated goal of purchasing properties worldwide, adding diversity to the portfolio. At the same time, HBC announced a joint real-estate venture with RioCan Real Estate Investment Trust.

Baker has proven adept at unlocking the real estate value of HBC, selling the Zellers stores for $1.8 billion to Target Corp., and selling and leasing back the flagship Queen St. property for $650 million.

When the deal closes, Hudson’s Bay Company will have 464 locations in four countries under eight different banners, including Lord & Taylor and Saks Fifth Avenue. The company estimates its eight main banners will generate about $13-billion in annual revenues.

HBC will also acquire 16 Sportarena stores, 16 Galeria Inno stores in Belgium, various logistics centres, warehouses and other properties, and the Galeria Kaufhof head office in Cologne. The companies’ joint agreement says HBC has made “extensive commitments” to maintain employment levels and store count, and for Galeria Kaufhof to remain headquartered in Cologne.

Metro had said months ago it wanted to divest Kaufhof to focus on its Metro Cash & Carry business, the Media-Saturn consumer electronics chain and its Real hypermarket. Hudson’s Bay beat out Vienna-based Signa Retail, controlled by Austrian property developer Rene Benko, who also owns Kaufhof competitor Karstadt, people familiar with the matter said. Signa said in a statement that it will focus on developing Karstadt.

The mostly cash bid by Hudson’s Bay was deemed a better offer because it included labour-related concessions, a more solid financing structure and plans to grow and invest, people familiar with the deal said. A merger of Kaufhof and Karstadt, on the other hand, may have led to job losses.

Kaufhof and Karstadt have dominated German department-store retailing for more than a century, though have struggled recently to adapt to new competitors including Inc. as shoppers seek more international brands in an increasingly crowded market. Kaufhof’s same-store sales fell 1.4 per cent last year and slipped again in the first quarter.

Hudson’s Bay Co. recently reported a $54-million loss in the first quarter of 2015.

Galeria Kaufhof, Munich