UPDATE: Berggruen, Highstreet Spar Over Karstadt Equity Stake
June 18 2010 - 12:59PM
Dow Jones News
Billionaire investor Nicolas Berggruen has offered Karstadt
property owner Highstreet an equity stake in Karstadt's performance
in exchange for an agreement to lower rents and a further cash
investment in Karstadt, people familiar with the matter told Dow
Jones Newswires.
Highstreet has thus far scoffed at the deal, which it rejects on
grounds that Berggruen's proposal unfairly rewards the stores'
acquirer with a disproportionate share of Karstadt's return on
equity relative to both parties' cash investments, one person
said.
The tense negotiations highlight ongoing uncertainty about the
fate of Karstadt, which risks a breakup if Berggruen and Highstreet
aren't able to reach an agreement by mid-July.
Highstreet is further skeptical of Berggruen's proposal to amend
Karstadt's master lease agreement, which would give him the freedom
to separate some Karstadt segments, such as sporting goods and
premium goods, into individual units, the person said.
The amendment would let Berggruen more effectively pursue sales
and merchandising agreements with external business partners who
otherwise wouldn't be interested in investing in mixed-use stores,
one of the people said.
Berggruen remains committed to keeping Karstadt intact, however,
and won't try to sell or spin off any of the stores, one of the
people said.
Berggruen's plan would require Highstreet to contribute EUR30
million for Karstadt in exchange for a 10% slice of the company's
return on equity.
Berggruen, who has agreed to invest EUR70 million up front,
would maintain the remaining 90% of Karstadt's return on equity.
Furthermore, Highstreet would acquire the 10% equity--in the form
of warrants--only after Berggruen had recouped his initial
investment twice over, according to two people familiar with the
matter.
Berggruen's EUR70 million investment would consist of an EUR65
million purchase price and EUR5 million in additional intellectual
capital rights.
The Highstreet real estate consortium, led by Goldman Sachs
Group Inc. (GS), acquired the bulk of Karstadt properties in a
leaseback deal several years ago from Karstadt's former owners.
Critics argue that Highstreet has charged exorbitant rents that
contributed to Karstadt's demise, and Berggruen wants new lease
terms to help improve profitability.
Berggruen and Highstreet have already agreed to lower Karstadt
rents immediately to around EUR210 million a year, two people said.
The debate on rents is now focused on Highstreet's desire to
increase rental prices relatively quickly in subsequent years,
which Berggruen wants to permit only based on Karstadt's revenue
performance.
As of Friday evening, Berggruen hadn't received a response from
Highstreet regarding further talks, people said.
Berggruen won a months-long bidding process to acquire Karstadt
earlier this month, beating out Highstreet and another buyout fund,
Triton.
Karstadt was forced into an insolvency process and auction after
its parent company Arcandor AG (ARO.XE) last year failed to line up
a government bailout to stay afloat.
-By William Launder; Dow Jones Newswires; +49 69 29 725 515;
william.launder@dowjones.com
Arcandor (GM) (USOTC:ACAGF)
Historical Stock Chart
From May 2024 to Jun 2024
Arcandor (GM) (USOTC:ACAGF)
Historical Stock Chart
From Jun 2023 to Jun 2024