TORONTO & NEW YORK--(BUSINESS WIRE)--HBC (TSX:HBC) today announced it entered into definitive agreements with SIGNA Retail Holdings, a leading European retail and real estate operator, to form a strategic partnership for its European retail and real estate assets.
“We are excited to bring together these iconic banners to create Germany’s leading retail business,” said Helena Foulkes, HBC’s Chief Executive Officer. “We are creating a stronger retail entity that is better positioned to capitalize on market opportunities. This transaction builds on our recent efforts to streamline HBC and provides a clear path forward to improve our European operations.”
HBC Europe’s retail operations will merge with SIGNA’s Karstadt Warenhaus GmbH, with HBC taking a 49.99% interest in the combined businesses. This includes two iconic banners, Galeria Kaufhof and Karstadt, as well as other HBC and SIGNA banners to create a well-capitalized retailer positioned for improved profitability. Together, these businesses generated approximately €5.4 billion in total sales during fiscal 2017. The new retail company will be led by Dr. Stephan Fanderl, CEO of Karstadt and an experienced German retail operator. HBC and SIGNA will share six board seats and have joint oversight of all major decisions.
Foulkes added, “We are taking strong action to strengthen our retail portfolio and enhance HBC’s profitability. This transaction creates significant value for our shareholders, enhances our balance sheet and provides a better operating platform for our European business. The creation of a stronger operator in Europe allows us to focus our attention on our North American banners, helping to ensure we are making the right strategic decisions to drive performance and profitability within those businesses.”
SIGNA will acquire a 50% interest in HBC’s German real estate assets from HBC and its partners, and a 50-50 joint venture will be formed to own and manage HBC’s German real estate assets. These transactions will generate net proceeds to HBC of €411 million ($616 million), and value the German real estate assets at a total of €3.25 billion ($4.88 billion) compared to the total Galeria Kaufhof purchase price of €2.51 billion ($3.77 billion) in 20151. The net proceeds, together with the implied value of HBC’s remaining interest in these real estate assets, net of debt, totals $8.71 per share2.
Richard Baker, HBC's Governor and Executive Chairman, said, “This transaction highlights the significant value of our German real estate assets, which are worth approximately $1.1 billion more than what we paid for Galeria Kaufhof in 2015. Our partnership with SIGNA will serve our business extremely well as it establishes a platform to further strengthen our European retail and real estate operations. This transaction reinforces our long-term focus of unlocking real estate value through strategic partnerships, redevelopment and enhancing the credit profile of retailer tenants along with managing a portfolio of retail banners.”
The combination of the retail companies and the formation of the real estate joint venture are expected to occur within the next 90 days and are subject to approval from European competition authorities and satisfaction or waiver of customary closing conditions. Follow on real estate transactions, and receipt of proceeds therefrom, are expected to occur through early 2019. HBC directs investors to its public filings available at www.sedar.com and at www.hbc.com for additional information and details of the transactions.
Advisors
J.P. Morgan Securities LLC acted as lead financial advisor and PJ SOLOMON as financial advisor to HBC on the transaction. Willkie Farr & Gallagher LLP served as M&A counsel and Stikeman Elliott LLP as company counsel. BofA Merrill Lynch was engaged by HBC to assist with obtaining amendments to HBC’s term loan and revolving credit facilities.
About HBC
HBC is a diversified global retailer focused on driving the performance of high quality stores and their omnichannel platforms and unlocking the value of real estate holdings. Founded in 1670, HBC is the oldest company in North America. HBC's portfolio today includes formats ranging from luxury to premium department stores to off price fashion shopping destinations, with more than 480 stores and approximately 65,000 employees around the world.
In North America, HBC's leading banners include Hudson's Bay, Lord & Taylor, Saks Fifth Avenue, and Saks OFF 5TH, along with Home Outfitters. In Europe, its banners include GALERIA Kaufhof, the largest department store group in Germany, Belgium's only department store group Galeria INNO, as well as Saks OFF 5TH in Germany and the Netherlands and Hudson’s Bay in the Netherlands.
HBC has significant investments in real estate joint ventures. It has partnered with Simon Property Group Inc. in the HBS Global Properties Joint Venture, which owns properties in the United States and Germany. In Canada, it has partnered with RioCan.
