Merger Kaufhof and Karstadt torpedoed?

The planned merger between department store group Galeria Kaufhof and its competitor Karstadt suddenly seems to be very far away again. Financial problems at Hudson’s Bay Company, Kaufhof’s owner, seem to be spoiling Karstadt’s appetite.

Bank sets ultimatum

Discussions between the two groups have been going on for some time now: they are looking for synergies to form a front against the growth of e-commerce. At the beginning of July the merger seemed be a closed deal, but that turns out to be premature now. The problem is a 1.34 billion euro loan granted by Landesbank Baden-Württemberg to Kaufhof owner HBC in 2015 to enable the purchase of 41 of the retailer’s 96 buildings, according to the Süddeutsche Zeitung. To be able to claim this loan, HBC had to meet certain credit conditions, one of which being an improvement in the operating result, but Kaufhof is falling deeper and deeper into the red.

The bank now sets an ultimatum: HBC has until 30 September to meet the credit conditions, otherwise the bank demands the amount back – completely impossible for HBC to comply given the group’s financial difficulties. For the Austrian Karstadt owner, René Benko, this complicates the merger talks as he does not exactly know the amount of debts he takes over in the event of a deal. Moreover, there is a risk of Kaufhof going bankrupt prematurely and then being sold in parts. According to observers, the negotiations will be on hold until this issue is resolved, possibly after October.