Metro AG plans to split its food operations from its consumer-electronics unit, creating two distinct listed companies that it said can capture growth better independently.
The separation would take place by the middle of next year and has the support of the company’s main shareholders, according to a statement Wednesday. Real hypermarkets and Cash & Carry food wholesale stores would be spun off from the Media Markt and Saturn electronics chains.
Metro jumped as much as 10 percent in Frankfurt, boosting the company’s market value to about 8.8 billion euros ($10 billion). A separation would mark the next chapter in the evolution of the German retailer, which has spent four years cleaning up its portfolio by divesting assets in Greece, Turkey and Vietnam, culminating in last year’s sale of its Kaufhof department-store chain.
“A demerger tidies up the investment story and it could free up both entities to participate in value-enhancing M&A,” David Payne, an analyst at Nomura, said by phone.
The company hit the acquisition trail last year, buying Classic Fine Foods Group, a Singapore-based supplier of gourmet products, for as much as $328 million. It has said it is looking for more deals, a process that may be accelerated by the demerger.
The main purpose of the split is to “unlock value potential” and “as such significantly increase stock market value,” said the company, whose plan is conditional on the approval of both the supervisory and executive boards.
Logical Step
“This is the logical next step in the transformation of Metro,” Chief Executive Officer Olaf Koch said on a conference call.
His opinion was shared by analysts such as Bryan Roberts at TCC Global in London.
“The investment case is much more compelling for two separate companies than for the combined group,” Roberts said. “The sense among investors is that Media-Markt would be worth a lot more separately and that that business is being held back by the rest of the group.”
The split will let investors choose between investing in electronics and food, Koch said. “We’re not forcing shareholders to take a combination any more,” he said.
2,050 Stores
Koch, who has held his post since the start of 2012, will head the wholesale and food unit, Metro said. The electronics unit, which represents about 37 percent of Metro’s sales and about 30 percent of profit, will be run by divisional chief Pieter Haas.
Metro operates more than 2,050 stores in Europe, Russia and Asia. After international sanctions foiled its plan to list its Russian Cash & Carry unit on the stock market in 2014, recent news has been better. Koch has been investing in the electronics and appliance stores and Cash & Carry with proceeds from the sale of Kaufhof. Sales at those units have grown consistently over the past year, while Real stores have struggled.
“The Cash and Carry business would make a good defensive stock, but they will struggle to get much enthusiasm behind Real,” Roberts said.
(Updates with analyst comment in fourth paragraph.)
--With assistance from Sam Chambers To contact the reporters on this story: Paul Jarvis in London at pjarvis@bloomberg.net, Aaron Ricadela in Frankfurt at aricadela@bloomberg.net. To contact the editors responsible for this story: Matthew Boyle at mboyle20@bloomberg.net, Paul Jarvis, Thomas Mulier
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