Wholesaler Metro Weighs Selling Majority of China Unit

(Bloomberg) -- German food wholesaler Metro AG is considering selling a majority of its business in China to a local bidder, people familiar with the matter said.

The company is willing to sell as much as 80 percent of the Chinese business while retaining a significant minority if an attractive offer is made, the people said, asking not to be identified as the deliberations are private. The sale is expected to kick off in February or March, after the Lunar New Year holidays, they said.

The final stake amount will depend on the offers, and a deal may also include Metro’s real estate holdings in the country, two of the people said. The company has finished a review for its Chinese operations, which started in June, and has decided to sell control to a domestic partner, they said.

“There is the obvious attraction of monetizing an attractive asset. However, what is left of Metro when selling the interesting growth assets?” Sanford C. Bernstein Ltd. analysts led by Bruno Monteyne wrote in a research note Friday. “Initial excitement about a bid premium will soon be replaced by worries about hollowing out the business.”

Metro’s Cash & Carry business in China spans 95 stores and reported revenue of 2.7 billion euros ($3.1 billion) in the 2017-2018 financial year, according to its website. The company had chosen Citigroup Inc. and JPMorgan Chase & Co. to run the review of its Chinese business, people familiar with the matter said last year.

A spokesman for Metro said that the company is in early stages of looking for new strategic partnerships for the Chinese business and is approaching partners it believes will enhance its existing capabilities as a wholesaler. Once a pool of “seriously interested partners” is identified, the company will start discussions about the scope of the agreements, though it won’t comment on specific names or a timeline, he said.

Selling control of Metro’s Chinese operations would attract strong interest at “nicely accretive multiples,” according to Jefferies Financial Group Inc. The business has had consistently strong sales and healthy margins, analysts including James Grzinic wrote in a report Friday.

Metro is also working to offload retail operations, which have been struggling to compete with discounters such as Aldi and Lidl. Chief Executive Officer Olaf Koch said in December that he expects to sell that business in the next four to six months.

--With assistance from Lisa Pham.

To contact the reporters on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net;Aaron Kirchfeld in London at akirchfeld@bloomberg.net;Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, Timothy Sifert

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