Metro May Divest More Non-Core Operations After Makro UK Sale

05/30/2012| 09:15am US/Eastern

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    - Other non-core units under review after Makro UK sale 
    - Investors likely to welcome disposal of U.K. problem child, analyst says 
    - Deal likely accretive for buyer Booker Group 
 
    (Rewrites with analyst comment, background throughout) 
 

German retailer Metro AG (>> METRO AG) said Wednesday it is reviewing the sale of more non-core operations after the company agreed to sell its loss-making Makro UK unit to Booker Group PLC (>> Booker Group Plc) for a combined value of GBP140 million in shares and cash.

In the deal, Booker would acquire all shares of Makro UK, its 30 outlets and operational assets. In return, Metro AG would receive a 9.99% stake in Booker Group and GBP15.8 million.

The deal follows Metro's withdrawal from the Moroccan market, and a decision to wrap up operations in France for its electronics retail division Media Markt/Saturn after losses there. The deal is in line with Metro Chief Executive Olaf Koch's strategy, who took the reins from Eckhard Cordes over the past year.

"We have to concentrate on our core business," he said, speaking in a conference call.

Operations in a "very small number of countries" are being investigated, though he added that no decisions have been made about future divestment yet.

Koch also said Metro's strategy for Makro UK wasn't successful in halting losses at the unit. In fiscal 2011, Makro UK's loss before interest and tax was GBP42 million, with GBP766 million in sales, while Booker achieved sales of nearly GBP4 billion and an operating profit of GBP89 million.

The move would enable Metro to focus on core markets in countries such as Germany, France, China, Italy, Poland, Russia, Turkey and Spain.

The sale of Makro UK deal would occur on a debt- and cash-free basis, and Metro expects to suffer a EUR200 million hit on earnings before interest and tax from the deal. The sale is likely to close at end-July, pending approval by Booker's shareholders and regulatory authorities, Metro said.

A Silvia Quandt analyst said investors would likely welcome divestment of the U.K. problem child and the fact that Metro would retain a stake in a potentially profitable business model at the same time. Both companies share a similar customer base, with Booker focusing more on catering and Metro more on other customers. The deal also eliminates a competitor for Booker and provides a better wholesale base, according to the Quandt.

Booker plans to maintain the Makro brand, and is planning to develop a growth strategy for the self-service wholesaler, according to Metro. Booker has 172 outlets in the U.K.

"We see obvious synergies especially in catering and online and believe that it could be 20% accretive to long term earnings [for Booker]," Panmure Gordon said.

Not all analysts were upbeat, however, with one Frankfurt-based analyst saying the deal isn't big enough to spur a turnaround at Metro, and the company may be booted from the DAX in any case in September, after recent declines in the share price.

At 1215 GMT, Metro shares are trading up 1.3% at EUR22.90.

  -By Ursula Quass and Shane Strowmatt, Dow Jones Newswires +49(0)69 29725 110, ursula.quass@dowjones.com 
 

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