What Metro could learn from Jimi Hendrix
The news of the demerger upped the share price by more than 12 per cent on the day, providing a welcome fillip for long-suffering shareholders. Since then analysts in the City of London have bombarded their clients with research papers containing likely scenarios for the future. Clearly the financial community are suckers for any kind of story – much as wide-eyed children are entranced by thimble riggers at a funfair.
Perhaps, though, these highly-paid experts, who pride themselves on the sophistication of their valuation techniques, should take a more sober view of future prospects. However parent company Metro may repackage its progeny, the new entities will not suddenly become something totally different.
A real chance for real,-?
Even Metro Cash & Carry with ten quarters of like-for-like growth behind it has seen annual revenues decline since 2003 in Germany and has withdrawn from a number of countries over the last four years.
Divided we fall
Worse still, Metro and strident founder Erich Kellerhals, whose family investment vehicle Convergenta still holds a minority stake of 21.6 per cent, have been feuding for years. Can a house divided against itself ever be a winning story?
So why are so many analysts suddenly so gung-ho about the split? Is it because Olaf Koch said at last week's presentation that the new entity will be "far more than Media-Saturn"?
At least some analysts foresee an end to the "conglomerate discount" on the share price. This is ironic coming from the very same institutions that once encouraged companies to diversify their risk profile by forming conglomerates.
Presumably, the financial community is also working on the basis that potential investors will be more interested in a pure play for Media-Saturn without "real,-" as a pig in the poke.
Interestingly, Koch lists Sysco rather than US warehouse club operator Costco in a selected ranking table of international wholesale and foodservice players, which would seem to underline a preference for delivered wholesale over big box C&C. But the most exciting scenario would be if Media-Saturn went for Dixons Carphone after mid-2017.
A marriage made in heaven?
As Bernstein senior analyst Bruno Monteyne points out in a plausible and cogent research note, both companies are essentially complementary in Europe. Any union would create combined annual net revenues of around €34bn, making it roughly the same size as Best Buy, the world's largest electronics retailer by sales. The new empire would span 17 countries in Europe, plus Turkey and Russia. There are only overlaps in Spain, Sweden and Greece.
Although the scope for pan-European buying often proves to be limited, Dixons Carphone would give Media-Saturn immediate leadership in the UK and grow its footprint in Scandinavia. For the business year to the 30th of April 2015, Dixons Carphone CEO Sebastian James was able to announce a 6 per cent increase in net revenues to around €12.6bn. This was essentially powered by growth at home.
Dixons Carphone, with estimated pre-tax profit this year of €570m, has a robust balance sheet with net indebtedness of only about €330m. Market cap is currently around €6.2bn. If one excludes the 12.35 per cent stake held by Directors and Senior Management, the largest institutional shareholders are BlackRock, Standard Life and Lansdowne Partners – whose ilk are more likely to be co-financers than obstructers of any potential deal.
Asked about probabilities, a former top manager at one of the players concerned put it to Lebensmittel Zeitung like this: "They would make a very good fit, and both companies know it." Although spokespersons at both companies declined to comment market rumours, one should watch this spot post mid-2017.
Ebitda: approx. €1.6bn
Source: Metro Group
What had originally been a Cash & Carry wholesaler pure and simple gradually became a huge and complicated multi-channel retailer. This cumulated in Metro going public in 1996. Conradi's vision was to offer local European planning authorities one of the world's broadest arrays of retail choices ranging from department stores, hypermarkets and DIY outlets to electronics stores, PC specialists and wine merchants.
Ebitda: approx. €0.7bn
Source: Metro Group
In retrospect, perhaps we should all have realised much sooner that Olaf Koch (45) would pave the way for radical change when he became CEO in 2012. After all, a man who plays electric guitar represents a major departure from the authoritarian management style of the past.
Given his penchant for rock music and an uncanny resemblance to Smashing Pumpkins lead singer Billy Corgan, a famous song by Jimi Hendrix comes to mind when reflecting upon the history of Metro: "Castles made of sand fall into the sea eventually." Our newspaper understands that this music is available at Media-Saturn both in-store and online.
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