Break-up Looms

Supermarket Showdown

resized Kaiser s Tengelmann supermarket chain source Oliver Berg DPA 66560802
Time is running out for the supermarket chain.
  • Why it matters

    Why it matters

    A break-up of Kaiser’s Tengelmann could reshuffle the supermarket landscape in Germany, giving some players additional market share.

  • Facts

    Facts

    • Edeka, Germany’s largest supermarket chain, launched a takeover bid for smaller rival Kaiser’s Tengelmann in October 2014.
    • The federal antitrust agency recommended against the proposed merger, but Economics Minister Sigmar Gabriel approved it. A court later overturned his ministerial approval.
    • Kaiser’s Tengelmann is a privately-owned, loss-making chain which had sought protection in the arms of Edeka.
  • Audio

    Audio

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It sounded like a pretty simple deal two years ago: Germany’s largest supermarket operator, Edeka, agreed to buy a loss-making and much smaller rival, Kaiser’s Tengelmann.

But it wasn’t to be. The deal has been held up in the air and become something of a political hot potato in Germany, after a federal anti-trust regulator and a court blocked the takeover – against the will of the country’s deputy chancellor.

Time is now running out for the around 450 Kaiser’s supermarket franchises. Their owner, Karl-Erivan Haub, has made plans to break up the group, close numerous locations and cut thousands of jobs, according to people familiar with the matter.

After the tough terms of the ministerial permission, Edeka is probably better off if the deal fails.

On Friday, Mr. Haub will lay out the supermarket chain’s dire situation before the company’s supervisory board. An expected loss of more than €100 million this year will require drastic measures, including the break-up of the entire group and shutting down of many franchises.

Kaiser’s has had a rough time of it in the past few years. A small market share and intense competition from rivals such as Edeka, Rewe and discounters Lidl and Aldi have made it difficult for Kaiser’s to turn the tide of falling sales and losses. Germany is also home to many local players.

Welcome to the rough-and-tumble supermarket battle in Europe’s largest economy. U.S. firm Walmart and French rival Carrefour have in the past tried to build a market in Germany, but pulled out amid intense competition.

 

Tengelmann Group-01

 

Labor groups are trying to make Kaiser’s fate an industry-wide issue in a bid to avoid job losses. The union Ver.di has called for a meeting of all the parties involved, including rival chain Rewe, Germany’s second-largest supermarket group. Rewe had challenged the minister’s takeover approval and successfully went to court to overturn Mr. Gabriel’s decision.

Ver.di, fearing job losses, wants to Kaiser’s, Edeka and Rewe to meet on Thursday to stave off the supermarket chain’s collapse, but there has been no confirmation that such a meeting will actually take place.

In response to an inquiry, a Rewe spokesman said the company had not yet received an invitation — neither from Ver.di to a roundtable discussion nor from Mr. Haub for private talks.

For now, only one player can lean back and enjoy the game: Markus Mosa, the head of Edeka, is holding the best cards.

After the tough terms that Mr. Gabriel had set for his approval of the takeover, Edeka is probably better off if the deal fails. Edeka was being asked to retain all employees. It also could not have boosted revenues by handing over stores to independent merchants.

Instead, if Kaiser’s Tengelmann goes bankrupt and is broken up, Mr. Mosa could cherry-pick the best locations.

The takeover discussions have provided Edeka with figures for all the stores, according to one participant in the negotiations. The expansion teams of Edeka could then contact landlords of the grocery stores one by one – and make them tailor-made offers.

Meantime, the takeover poker game has turned into a game of passing the buck: Each side wants to hold others responsible for the looming insolvency and ensuing break-up of Kaiser’s Tengelmann.

Tengelmann’s chief Mr. Haub believes his honor as a family entrepreneur is on the line. While seeking to sell the stores, he wants to avoid giving the impression that he is frivolously gambling with 16,000 jobs at the supermarket chain and evading his responsibility.

 

139 Kaiser's Tengelmann WTB 2015

 

So it’s no accident that, shortly before the regularly scheduled meeting of the chain’s supervisory board Friday, documents disclosing the company’s sorry finances were made public. It also include the break-up plan.

But Mr. Haub isn’t making many friends with this strategy. According to information obtained by Handelsblatt, labor representatives on the supervisory board feel snubbed after learning from media reports of his plans to break up the company.

How little regard Mr. Haub has for the supervisory board should have been clear back in October 2014, when he first informed the non-executive directors of the proposed sale of Kaiser’s Tengelmann to market leader Edeka – a week after the sales contract had been signed.

From Mr. Haub’s point of view, the main culprit in the deadlock — besides the federal antitrust agency, which blocked the deal — is his competitor Rewe. The company successfully brought action against the ministerial permission that would have allowed the deal to go through.

Rewe has also regularly offered to take over Kaiser’s Tengelmann completely – including all employees. Since Rewe could be sure it wouldn’t have to make good on this promise, some observers considered the offers to be mere bluffs.

But the chief executive of Rewe, Alain Caparros, is equally disinclined to be labeled the bogeyman. In a personal letter to Mr. Haub last week, he said once again that Rewe is ready to talk. “We are part of the solution, not part of the problem,” he wrote.

But Mr. Caparros is leaving it to Mr. Haub to figure out what such a solution could actually be.

 

Florian Kolf leads a team of reporters covering the retail, consumer goods, luxury and fashion markets. Gilbert Kreijger, an editor with Handelsblatt Global Edition in Berlin, contributed to this article. To contact the author: kolf@handelsblatt.com

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