March 8, 2013

Beisheim and Metro Group's lower dividend

Otto Beisheim
Otto Beisheim (left) in his heyday during the 60's with Jürgen Wolfskeil, former senior editor of Lebensmittel Zeitung
Metro Group has proposed lowering its dividend from €1.35 to €1 per ordinary share hardly two weeks after the decease of co-founder Otto Beisheim at the age of 89.

Beisheim had already reduced his stake in the world's third-largest retailer to less than 10 per cent. Therefore, any attempt to establish a relationship between the two events might seem like straining a point.

However, surely they are connected by a long chain of causality? It all began in the heady 60's when the young started growing their hair and schocking the establishment. Certainly, it is hard today to convey the sheer excitement created by such retail visionaries as Beisheim, Defforey (Carrefour hypermarkets) or Cohen (Tesco). 
 
Perhaps the nearest recent comparison would be when techno freaks slept in the street overnight in order to buy the first iPhone at their local Apple store the next morning.

Inspired by Jewish retailers

Inspired by Jewish-American wholesalers on the US East Coast, Otto Beisheim virtually introduced the Cash & Carry format to Germany in 1964. He wasn't quite the first person to do so, but it was his systems-driven approach which mastered the art of multiplication and economies of scale.

His decision in the late 70's to diversify what was later to become the Metro Group into a department store, entertainment electronics and hypermarket conglomerate is easy to criticise in retrospect.

At the time, however, it was a logical move. Metro C&C was awash with cash, so why not diversify the risk? Beisheim would have had to have been preternaturally gifted to have foreseen the rise of the internet and its immense acceleration of the retail life cycle.

Much is written today about Metro Cash & Carry's decline on its home German market as though this could be any surprise to the company itself.

But Beisheim clearly saw the decreasing atomisation of modern markets. In co-operation with Dutch conglomerate SHV, Metro was therefore a global pioneer who invested in other nations with less-developed retail/HORECA structures.

Thus, despite the Düsseldorf-based company's recent decline, its 280,000 employees still make annual revenues of €67bn in 32 countries.

Complexity before a fall?

Yet it was, however, the diversification of Metro which created today's complexity and perhaps future downfall.

Historians say of military genius Napoleon that his armies became so large that inevitably it was his marshals who fought and lost his battles. One could make out a similar case for Beisheim.

Although he didn't retire from Metro Group's board until 1994, or lose majority control, via a voting agreement with the Haniel and Schmidt-Ruthenbeck families, until 2007, the sheer size and diversity of what Beisheim created could only be effectively managed by his lieutenants.

Alpha males Erwin Conradi and later Dr. Hans-Joachim Körber may have been technocratic IT viz. financial masters who could play with virtuosity on the keyboard of corporate power. But, despite the vehement objections they would doubtless make to the contrary, at the end of the day, they were not retailers.

A comparison for our British readers would be Sir Philip Green entrusting his retail empire to former premier and finance minister Gordon Brown.

Olaf Koch's skydive

Readers will note that no reference is made here to current CEO Olaf Koch. If you push even the best sky diver out of a plane at 10,000 feet without a parachute, he may bravely sing "Don't worry, be happy" on the way down, but Newton's laws of physics will duly assert themselves.

Although the Beisheim Group states that there are no plans to sell its stake in Metro, questions inevitably arise regarding the fate of the group. This is especially the case now that the Haniel and Schmidt-Ruthenbeck families have reduced their former majority stake to 45.78 per cent of the shares.

The proposed reduction in the dividend, combined with news that the group's effective tax rate is now 87.5 per pent, duly clobbered Metro's share price by more than 10 per cent this week. Market capitalisation of around €6.7bn has long been higher than group book value anyway.

As Haniel looks glumly towards an estimated €30m less than the €157m it received in dividends in 2011, one wonders what Beisheim would have thought.

As a retailer he would doubtless have wanted the money to stay in the company at such a difficult time, as a minority investor he would presumably have been disappointed. Perhaps it is Metro's triumph and tragedy that he was both.
 
  
Related article in German: Lebensmittel Zeitung, no. 10, 08.03.2013, by Hans-Jürgen Schulz
 
  

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