Analysis: Radical Metro revamp unlikely despite Russia IPO plan

Tue Jan 21, 2014 11:13am EST
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By Emma Thomasson and Matthias Inverardi

BERLIN/DUESSELDORF (Reuters) - A break-up of sprawling German retail group Metro AG (MEOG.DE: Quote) looks unlikely despite speculation that the planned sale of a stake in its Russian cash-and-carry unit is the start of more radical restructuring.

Metro said on Monday its supervisory board had approved the sale of up to a quarter of its Russian cash-and-carry business in a London listing in the first half of this year.

The sale of the stake in Metro's most profitable unit should raise at least 1 billion euros ($1.36 billion), help cut the company's hefty debt, as well as free up funds to grow the Russia unit and invest in other markets, like China and Turkey.

The plan has stoked speculation that Metro, the world's seventh-biggest retailer, could be preparing more dramatic steps to rationalise its four businesses that run over 2,200 outlets in 32 countries. The group has been working hard to improve performance since a shock cut to its dividend last March.

But there is little immediate prospect that Metro will spin off its struggling hypermarkets and consumer electronics chain, or be able to cash in on its recovering department stores, to enable it to focus on its core cash-and-carry business.

Metro shares have gained more than 50 percent since last March, when Chief Executive Olaf Koch took over direct responsibility for the cash-and-carry wholesale business which accounts for almost half of group sales.

They now trade at 17 times expected 2014 earnings, just above Europe's biggest retailer Carrefour (CARR.PA: Quote) on 16.8 times and a big premium to no. 2, Tesco (TSCO.L: Quote), on 10.9 times.

But they are still well below historical levels, hurting the group's biggest shareholder, family-owned conglomerate Haniel FHANI.UL, which has been an investor in Metro since 1966 and cut its stake a year ago to 30 percent from 34 percent.   Continued...

The logo of Germany's biggest retailer Metro AG is pictured at a Metro cash and carry in Berlin, June 10, 2009. REUTERS/Fabrizio Bensch