Metro puts Brake Pedal on Kaufhof sale plan as debt crisis hurts bidders

Metro AG Chief Executive Officer Eckhard Cordes said he is in no rush to sell Kaufhof as bidders struggle to secure financing for a price that reflects the department-store chain s improvement.

Metro has held talks with possible buyers for years, Cordes said in an interview. The European debt crisis has made him less optimistic than he was six weeks ago that an accord will be reached in the near term. All prospective buyers for Kaufhof, which he values at 2 billion euros ($2.5 billion) to 3 billion euros are financial, he said.

Kaufhof is undergoing a really good development, and we ll see a further improvement in 2010, the 59-year-old executive said in Berlin. That s not increasing our willingness to sell at a low price. It s us who are standing on the brake pedal.

The retailer is expanding in emerging markets including China after reducing the company s reliance on Germany, where retail sales have stagnated for the past decade. While he s improved profitability at Kaufhof by shutting outlets, Cordes says the brand doesn t have the same potential for international expansion as Metro s other chains, including consumer- electronics retailer Media Markt or Cash & Carry.

German department stores have been losing market share as consumers increasingly seek wider product selections at specialty shops. Berggruen Holdings Ltd. last week agreed to buy Karstadt AG for an undisclosed sum after its parent, Arcandor AG, filed for bankruptcy last year.

Kaufhof s profitability will improve in 2010 for a third straight year, according to the executive. Kaufhof s earnings before interest, tax and one-time items rose to 119 million euros last year from 115 million euros in 2008. The operating margin on that basis widened to 3.4 percent from 3.2 percent.

While Cordes passed on buying all the Karstadt outlets, he would still like to bundle a considerable number of the rival s shops with Kaufhof to make a sale more appealing.

Cordes, a former executive at DaimlerChrysler AG, replaced Hans-Joachim Koerber as Metro CEO in October 2007. Under Cordes, Metro has sold the Extra supermarket chain and the Adler fashion chain.

Metro shares have advanced 5.6 percent this year, while larger competitor Carrefour SA has gained 5.3 percent. They have lost more than a quarter of their value under Cordes, who has forecast a tangible increase in full-year earnings before interest and taxes this year.

Metro will likely open more than the 90 stores pledged for this year, and capital expenditure will probably exceed the targeted 1.9 billion euros, Cordes said.

The company will accelerate expansion in Beijing, Shanghai and Guangzhou and is aiming for 50 Cash & Carry outlets in China by the end of the year. The company isn t present in Latin America, though Cordes called Brazil attractive.

Metro isn t interested in buying PPR SA s FNAC unit as the retailer s concept is too different from Metro s consumer- electronics unit, Cordes said. PPR, the owner of Gucci Group, is seeking to offload its retail assets to focus on luxury goods.

Separately, the company today said it plans to shut down three Cash & Carry outlets in Germany as they can t be made profitable and sell another, according to Cordes.

The Dusseldorf-based company has introduced private-label brands, started customer-delivery services and cut prices as part of a turnaround strategy that targets an operating profit of 150 million euros for the German Cash & Carry unit by 2012.

The situation at Metro s 30 Makro wholesale stores in the U.K. is comparable to that in Germany, Cordes said. Metro doesn t plan to sell the British business, as it wouldn t fetch an attractive price, he said. Cordes visited rival U.K. stores this week and found them to be doing a better job than his.

The problem in both countries is the non-food business, which we have to improve, Cordes said. Food sales are rising at the U.K. business, which has helped halt the slide in operating profit there, he said.