Metro AG Breakup Plan Faces Opposition

FRANKFURT—Metro AG, one of Europe's largest retailers, wants to break itself up to boost shareholder value, but one of its biggest investors doesn't like the deal and warns that it would ultimately destroy value.

Dusseldorf-based Metro earlier in September presented details of how it expects to divide into separate retailers of food and consumer electronics. The plan entails spinning off to shareholders a 90% stake in its food operations, which would become a still-unnamed independent stock-listed company run by Metro's current chief executive, Olaf Koch.

The legacy portion of Metro would focus on Media Markt Saturn, which is Europe's largest consumer electronics retailer, with annual revenue of roughly €22 billion ($24.7 billion) and more than 1,000 stores across the continent.

Metro owns 78% of Media Markt Saturn. The other 22% is owned by German billionaire Erich Kellerhals through his holding company, Convergenta Invest GmbH, which is now casting a shadow on the breakup plan.

Mr. Koch said the separation was necessary to boost sales and profits at both units, and shareholders reacted enthusiastically when Metro unveiled the plan in March. But skepticism has since weighed on Metro's share price.

Now Mr. Kellerhals is threatening to upend Mr. Koch's plan because he wants profit at Media Markt Saturn reinvested in the chain, rather than paid to Metro. Such a move, if successful, could jeopardize Metro's ability to pay dividends to its shareholders.

"We estimate Media Markt Saturn needs to strengthen its equity by at least €100 million to fund necessary investments, particularly into online retail operations," Convergenta's Executive Director Ralph Becker told The Wall Street Journal. He said Convergenta has the legal means to ensure the electronics retailer retains earnings.

A Metro spokesman said the company saw no reason for a capital injection and that Media Markt Saturn was a "cash rich company with almost no financial liabilities."

Write to Eyk Henning at eyk.henning@wsj.com and Ellen Emmerentze Jervell at ellen.jervell@wsj.com

(END) Dow Jones Newswires

September 23, 2016 04:35 ET (08:35 GMT)

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