(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 no-frills warehouses at $6.6 billion.
The proposal from 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. The offer lifted Metro’s shares as much as 4.8% early Monday in Frankfurt, the most since January.
Metro management rejected the bid as too low. The investors haven’t explained 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.
European bricks-and-mortar merchants are struggling to contend with the rise of Amazon.com Inc. and cut-price chains Lidl and Aldi. In the U.K., department-store operator House of Fraser was rescued out of insolvency while rival Debenhams was taken over by creditors. The parent of debt-burdened French grocer Casino has sought court protection from lenders, while rival Carrefour SA 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 U.K. entrepreneur whose Sports Direct International Plc took over House of Fraser, and Russia’s Mikhail Fridman, who’s moving to take control of Spanish grocer DIA.
The 16-euro bid for each ordinary share of Metro -– a meager 3% premium over Friday’s close in Frankfurt -- doesn’t reflect its value creation plan, the Dusseldorf-based company said in a statement. The shares have jumped about 40% in the past 12 months, gaining since Kretinsky and Tkac bought a stake in the wholesaler in August 2018.
Kretinsky, who has a net worth of at least $3 billion, according to the Bloomberg Billionaires Index, has no shortage of ambition. After building a portfolio that includes energy and media assets alongside the Sparta Prague soccer team, he acquired a stake in French daily Le Monde last year.
A debt-fueled acquisition spree turned Kretinsky’s EPH from a small Czech utility into one of the biggest power companies in central Europe. It values its assets in the Czech Republic, Slovakia, Germany, Italy, the U.K., Hungary and Poland at about 13 billion euros ($14.8 billion), according to the latest available data from 2017.
Kretinsky’s EP Global Commerce VI holding company, through which he’s bidding for Metro, declined to comment on the company’s rebuff.
The Czech investor already has a 10.9% stake, according to data compiled by Bloomberg, meaning the outlay to swallow up the rest of Metro would be about 5.2 billion euros. Ceconomy AG, the electronics retailer that separated from Metro about two years ago, said Monday that it has sold its 9% stake to EP. Haniel Finance Deutschland GmbH, a 15% holder, has agreed to back the bid, which would give the bidders about one-third of the equity.
Kretinsky 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 keep competing in a changing landscape. If his bid succeeds, Kretinsky will have to complete the sale of its struggling Real retail banner to focus more on the wholesale business. Metro, which is also trying to sell its Chinese unit, operates in 36 countries and employs more than 150,000 people worldwide.
“Metro will now pursue actions to demonstrate that accepting this offer is not in its shareholders’ best interest,” Jefferies analysts James Grzinic and Frederick Wild said in a note. The company could “debate the potential to extract strategic value in other geographies.”
The bid will be subject to a minimum acceptance threshold, probably in the range of 60% to 75% of Metro’s share capital, two people familiar with the matter said. BNP Paribas SA, Credit Suisse Group AG and Societe Generale SA are acting as debt underwriters.
What Bloomberg Intelligence Says
“Deeper investment in delivery and digital tools is resonating with customers, yet it’s difficult to see wholesale as anything other than a low-margin business.”
Charles Allen, BI retail analystClick here to read the piece
Metro was founded in 1964 by German billionaire Otto Beisheim with the help of the Haniel and Schmidt-Ruthenbeck families. Metro also once owned the Galeria Kaufhof department store chain, which was sold in 2015 to Hudson’s Bay Co.
The stance of the Beisheim and Schmidt-Ruthenbeck families, which together own more than 20% of Metro, will be key to the outcome of the bid. If their quest succeeds, the potential buyers said they don’t plan to close any of the existing Metro stores in Germany or other core markets or substantially reduce headcount.
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.
(Updates with Ceconomy stake sale in 10th paragraph, analyst comment in 13th paragraph.)
--With assistance from Eyk Henning and Alex Sazonov.
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