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Hudson’s Bay to Buy German Department Store Group Galeria Kaufhof

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North America’s oldest company, Hudson’s Bay Co., said Monday that it will acquire German international trading company Metro Group’s top department store chain Galeria Kaufhof in a deal valued at 2.83 billion euro ($3.18 billion).

The move is expected to create a global platform for the Canada-based retail group—which operates its namesake store Hudson’s Bay, Lord and Taylor, Saks Fifth Avenue and Saks Off 5th—and position the company for expansion in Europe.

HBC will take over 103 Galeria Kaufhof stores in Germany, plus 16 Sportarena stores, 16 Galeria Inno department stores in Belgium, some logistics centers and warehouses and Galeria Kaufhof’s head office in Cologne. HBC will continue to operate the stores under their existing banners and retain the roughly 21,500 employees already on board with Galeria Kaufhof.

Management teams from both companies will work together to pursue introducing Saks Fifth Avenue and off-price Off 5th in Germany and Belgium.

“This is an exciting transaction that demonstrates our proven growth formula in action, and it is the right investment and the right time,” HBC governor and executive chairman Richard Baker said in a statement. “We have been carefully surveying the European retail landscape for many years for a potential expansion opportunity and have watched Galeria Kaufhof build on its exceptional real estate to become the #1 department store in Germany. We are excited to work with the Galeria Kaufhof management team to leverage our expertise, and we welcome Galeria Kaufhof to our portfolio of dynamic brands.”

The deal will yield positive cash flow around 1.6 billion euro ($) for Metro Group and reduce its net debt by 2.7 billion euro ($). The group expects earnings before interest and tax of 700 million euro ($787 million) from the transaction.

Don Watros, president of HBC International, said, “With GALERIA Kaufhof, we gain a best-in-market, successful retailer with a network of very well-maintained stores, a beloved heritage and a brand that resonates strongly with German consumers. Based on our extensive experience in building outstanding department stores, we intend to leverage our expertise and proven strategies to further build GALERIA Kaufhof for a strong, all-channel future.”

Following the acquisition, which is expected to close by the end of the third quarter, HBC will operate 464 stores under eight banners, with nearly half (44 percent) of sales generated in the U.S., 31 percent in Germany, 23 percent in Canada and 2 percent in Belgium.

Metro Group said it made the move in order to focus on its Metro Cash & Carry wholesale business, its consumer electronics division Media-Saturn and its hypermarket chain Real. Part of the proceeds from the sale will go toward growing those businesses.

HBC CEO Jerry Storch said, “This transaction is a significant step forward in our plans to become a premier global retailer. We look forward to working with GALERIA Kaufhof’s management team as we bring together two geographically complementary businesses, diversifying HBC’s revenue base with leading banners in Canada, the United States, Germany and Belgium. This is a strong foundation to explore additional opportunities for growth throughout the Continent.”

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