May 25, 2012

Embattled Schlecker awaits saviour

Arndt Geiwitz, insolvency administrator (photo: Thomas Rohnke)
Problems, problems: Schlecker insolvency administrator Arndt Geiwitz confirms new losses
How are the mighty fallen! Only one year ago, Schlecker was still deemed Europe's largest drugstore operator by sales and outlet numbers. Now the Ehingen-based company is fighting for its very survival.

Despite closing 2,300 stores and pruning staff numbers by 11,000 to around 13,500 since the opening of insolvency proceedings on March 28, Schlecker is in the red again. The already dire situation has been exacerbated by the stopping of compensation for bankruptcy since this date.

Lebensmittel Zeitung estimates that a lower two-digit million euro loss has accrued over the last six weeks, although the exact figure has not been confirmed by Schlecker's insolvency administrator Arndt Geiwitz. Up to March, the family-run company owed €300m in outstanding payments to suppliers alone.

After the emirate of Qatar, whose royal family owns a 25 per cent stake in UK food multiple J.Sainsbury, quit the bidding table on Wednesday, Geiwitz claims that "intensive" negotiations are being held with two potential investors.

Nicolas Berggruen everywhere
 
As Lebensmittel Zeitung revealed three weeks ago, these include New York-based investor Cerberus. On Friday, Nicolas Berggruen, the billionaire knight in shining armour who rushed in, somewhat quixotically, two years ago to save insolvent German department store operator Karstadt, has confirmed his interest.

Apparently Berggruen (51), whom the German media delight in portraying as a wolf in sheep’s clothing, only emerged from the woodwork two weeks ago. He is said to be offering €100m to €150m and to have presented Euler Hermes, Schlecker’s principal creditor, with a business plan. All parties have refused to comment the details.

Berggruen’s proposal was doubtless discussed when Schlecker’s three largest creditors met in Ulm on May 25. However, a final decision on whether, or not, to wind Schlecker down has been postponed until June 1.

A romantic?

Should Berggruen clinch the deal, this will confirm his reputation as a romantic lover of (nearly) lost causes. Opinions vary as to his ultimate motives. Berggruen Holdings has, for instance, considerable competence in real estate. The man himself is certainly hard for the relentlessly logical German mind to interpret.

Those who claim to know him portray this shy and quietly-spoken man as an idealist who has also considered turning Karstadt into a foundation and presenting it as a gift to the German people. If so, his gesture would follow in similar footsteps to those of his German-Jewish émigré father Heinz Berggruen (cf. separate blog).

Last year, Berggruen agreed to an exclusive interview with Lebensmittel Zeitung together with freshly-baked Karstadt chairman Alain Caparros, the volatile CEO of Rewe Group. Days before the meeting, Caparros threw in the towel at Karstadt suggesting a lack of information on which to base strategic decisions at board level. Our subsequent emails and telephone calls to Mr. Berggruen requesting an alternative date have not been answered.

Scary staff

However, the dice may fall for Schlecker, insolvency administrator Arndt Geiwitz says that all talks with would-be investors have been burdened by 4,000 legal actions filed by or on behalf of staff who refuse to accept severance pay and who are suing for dismissal protection. These recalcitrant individuals have caused “extremely difficult problems” and are “scaring” investors away.

It is at least doubtful that staff who want to continue working for their company are the only scare factor. Until Berggruen’s surprise appearance on the scene as deus ex machina in spe, local financial circles considered it unlikely that Geiwitz would get anything for Schlecker in Germany.

After all, the urgent modernisation of the store base will cost an estimated €100m – small wonder that Schlecker’s competitors were already licking their lips for cherry-picking season.

Carving the roast

At least some progress has been made regarding Schlecker’s wide empire in Europe. Its Czech subsidiary was sold to local multiple PKS in March, and the sale of Schlecker France is said to be near completion. There are also ongoing negotiations in Spain and Austria.

Schlecker’s more upmarket German subsidiary “Ihr Platz” remains the object of separate insolvency proceedings supervised by Geiwitz’s partner Werner Schneider. Lebensmittel Zeitung considers it likely that a sale to Munich-based investment company Dubag could be affected within the next few days.

Perhaps all could end well for Schlecker in Germany, if only those 4,000 wicked workers didn’t want to keep their monotonous, lowly-paid jobs. Life would then be so much easier for corporate lawyers, international financiers and insolvency administrators. Sigh!
 
  
Related articles in German: Lebensmittel Zeitung, no.s 20 & 21, 18.05.2012 viz. 25.05.2012, by Jan Mende


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