April 4, 2013

Qataris interested in Karstadt and Kaufhof?

Maurizio Borletti, CEO Borletti Group (photo: Frédéric Réglain)
Savvy investor: Maurizio Borletti could sell his stake in Printemps to the Qataris (photo: Frédéric Réglain)
Three years ago it was Harrods and, pending a statutory meeting with the unions in Paris tomorrow, it could now be Printemps.

Clearly, Arabs from the tiny Emirate of Qatar are doing more than just their shopping in Europe.

Their $100bn sovereign wealth fund, the Qatar Investment Authority (QIA) with its direct investment (Qatar Holding) and real estate (Qatari Diar) arms, is fuelled by oil and natural gas.

As in other Gulf States, the QIA's investment decisions are believed to be heavily influenced by the ruling family.

Measured by their track record, the sheiks seem to have a marked propensity for infrastructure projects, luxury labels, and prestigious European retail brands.

Qatari holdings in such glamorous companies as Valentino, Tiffany or Carrefour owner LVMH are well-documented.

But their growing investment in Western European retail is largely under the radar. If you add all the jigsaw pieces together, however, they already make an impressive array.

QIA and its umbrella fund Delta Two first hit the headlines over an abortive takeover bid for J. Sainsbury in 2007. The Arabs still have a 26 per cent stake in the UK’s third-largest retailer by sales.

In May 2010, Qatar Holding was more successful when it bought Harrods, the luxury department store in London’s swanky Knightsbridge district, from the Al-Fayed family for £1.5bn.

Not content with this coup, the Emirate of Qatar now looks set to gain full control of French luxury department store operator Printemps (2011 revenues: €1.5bn).

Waiting on the unions


No parties can make a statement until after tomorrow's meeting with representatives of the works force. The unions are broadly supportive of the deal, but there are critics.

For instance, Bernard Demarcq, secretary general of UGICT-CGT, fears that Qatari ownership could lead to less investment in provincial stores such as Le Havre or Metz. The bidders have replied by underlining plans to open several news stores in Marseille etc.

Originally, Rreef, a real estate fund subsidiary of Deutsche Bank, and Borletti Group bought Paris-based Printemps for just under €1.1bn in 2006. Their stakes are 70 viz. 30 per cent. Since then, they claim to have invested €350m in the retail icon's 16 department stores.

As per the terms of their contract, Rreef entered into exclusive negotiations with asset & investment manager Maurizio Borletti earlier this year for the sale of its majority stake in Printemps.

Backed by the Qataris, Borletti Group mounted a €1.6bn bid for full control of Printemps a number of weeks ago.

Galeries Lafayette gets rough


The proposed transaction duly elicited a counter-bid from arch-rival Galeries Lafayette who failed to buy Printemps from former owner PPR in 2006. France’s largest department store group is believed to have made Rreef an offer equating to around €1.8bn.

Somewhat incongruously, given Galeries Lafayette's numerous foreign operations and international clientele, Chairman Philippe Houzé seemed to strike a nationalist tone in the French media in an apparent attempt to gain local support.

Although Galeries Lafayette would appear to be offering more on paper, its bid looks something of a non-starter.

Sceptics point to possible competition problems at more than seven sites, if the company was to merge with Printemps and create a national champion with combined annual revenues of around €4.4bn. This, however, is contended by Galeries Lafayette.

Perhaps more significantly, France has thrown out the red carpet to Qatari investments in the past, and the political establishment is unlikely to court Arab disfavour today.

In 2008, France signed a fiscal convention, exempting Qatar state-owned companies from capital gains taxes on real estate investment.

Friends in high places


Also, The Financial Times believes that the QIA provided a letter of intent in December 2012 to commit €250m to a European private equity fund that could be run by former premier Nicolas Sarkozy.

According to Reuters, which claims to have seen "official documents", the Qataris have now gone one step further and are negotiating with Maurizio Borletti for full control of Printemps.

They obviously feel that the Italian has done a good job at Printemps, otherwise they wouldn't be offering the Borletti team a seven-year contract to continue running operations.

Over the last six years, Borletti has positioned the company even more emphatically in the luxury segment via, for instance, the listing of more top brands. "Printemps is now a very solid retail brand," confirms Guy-Noël Chatelin, retail expert at OC&C Strategy Consultants.

The facts speak for themselves. With an average basket size of €600, annual revenues have increased by 30 per cent to around €1.5bn since 2006, while gross margin has doubled.

Working on the basis that the Qataris will triumph at Printemps, the question remains what they intend to do in the future. With Harrods and Printemps, the emirate already has the beginnings of a European luxury department store portfolio.

Marks & Sparks


Only in mid-March, The Sunday Telegraph rehashed long-standing rumours that the Qataris want to go for Marks & Spencer. The newspaper claimed that Qatar Holding was trying to forge a consortium in order to make a €9.2bn bid for the London-based department store group.

Both parties have since published a denial, but an initial 7 per cent jump in the share price of this historic retail brand indicates that there were obviously investors on the London stock exchange who at least found the story plausible.

Whatever its real merits, there are a number of reasons why the Qataris’ next move could just as easily be to Germany. After all, this is a country where leading department store operators Karstadt and Kaufhof have long struggled in the inner cities.

The QIA already has stakes in a number of iconic German businesses including Porsche and Volkswagen.

Fire exit for Berggruen


It will surely not have escaped Arab attention that Nicolas Berggruen, the current owner of troubled Karstadt, split the group into three limited companies in 2011. One of these, the Karstadt Premium GmbH, houses Karstadt’s three premium outlets: KaDeWe in Berlin, Alsterhaus in Hamburg, and Oberpollinger in Munich.

Although nothing is known about Berggruen’s ultimate intentions for Karstadt, the creation of a separate premium store company would at least facilitate the sale of these three prestigious retail destinations.

Should the Qataris use their virtually limitless funds to hunt for department store acquisitions in Germany, they will surely have a congenial partner in Maurizio Borletti.

Although his current engagement in Germany is relatively small (a 2 per cent stake in real estate investment company Highstreet which is likely to be sold soon), he has intimate knowledge of the sector.

Borletti mounted an ultimately unsuccessful takeover bid for Karstadt in 2010 and is well acquainted with the value of Metro Group subsidiary Kaufhof.

In an earlier interview with our newspaper, the Milan investor didn't hide his own dream of creating a European premium department store group.

"We are always interested in business opportunities," was his sibylline response to our enquiry last week as to whether he might be looking at Germany again.

Perhaps we should have asked: With or without the Qataris?

 

Podcast microphone (photo: Gerhard Seybert-Fotolia)
(photo: Gerhard Seybert-Fotolia)

Podcast. Click arrow to listen to an audio version of the text:






Lebensmittel Zeitung print and digital (photo: LZ)
photo: LZ
Our German B2B newspaper, Lebensmittel Zeitung, in print & digital
Read in German: By international editor Mike Dawson in
Lebensmittel Zeitung, no. 14, 05.04.2013

 











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Comments for this article are closed.

  1. Francoise Marquant
    Created 7 April, 2013 15:59 | Permanent link

    For my part as a French person I think it a shame that Qatari investors have gained total control of national retail icon Printemps which is an institution in France! I am now not so sure that I want to do my shopping there.

  2. Mike Dawson
    Created 8 April, 2013 06:56 | Permanent link

    It is hard for a Brit to feel about a French retail icon in the same way that a French person may. However, a similar situation could be said to exist across the Channel regarding Harrods.

    Theoretically, nothing has altered as the current German and Italian owners are not French anyway. In fact, the ownership of Printemps has changed many times since it was founded by Jules Jaluzot and Jean-Alfred Duclos in 1865 as the first modern department store in Paris.

    But this is a quibble. In fact, you raise a similar point to Galeries Lafayette Chairman Philippe Houzé recently in Le Figaro* and Les Échos**, albeit from a consumer's rather than a rival bidder's angle. Clearly, also the Qataris took a political stand which did not please everyone.

    Not sure, however, that, with the exception of anti-Qatari militants, this will be a very strong issue. Most customers don't seem bothered by the foreign ownership of Harrods, and there has not been a boycott by purists.

    One issue, of course, is authenticity, and the Qataris would be wise not to change the quintessentially French character of Printemps.

    In this increasingly globalised world a look behind the facade does, however, often reveal some surprising ownership. Perhaps if one looked into it, one would find that Buckingham Palace belongs to a Dubai property fund!

    Enthusiastic colleagues reveal that you own an excellent French bistro and shop in Bad Homburg (www.marquants.de). Asked whether they would still want to eat there, if an Icelandic private equity fund bought you out and retained you on a management contract to run the show, there came a resounding: "Yes!" So globalisation has its merits after all.

    ------
    * « Nous sommes un groupe familial français… »

    ** « Dès que l’on touche à ce qui est profondément ancré dans notre culture, à ce qui est emblématique de Paris et de la France, à ce qui affecte notre art de vivre, il faut veiller à ce qu’une solution française de long terme existe. […] Soit on laisse la place à des constructions financières baroques et opaques, avec les risques économiques et sociaux qu’elles impliquent ; soit on permet à des offres industrielles françaises de s’exprimer et alors, les grands magasins à la française auront encore de beaux jours devant eux. »

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