Metro’s dispute with a minority shareholder at its electronics subsidiary is escalating into a struggle to determine the future of the chief executive of Germany’s biggest retail group by sales.
Eckhard Cordes’ attempt to cement control at Media-Markt-Saturn is attracting angry opposition from the chain’s founder, at just the moment when Mr Cordes’ contract as Metro chief executive – which he has run for almost four years – is soon due for renewal.
Mr Cordes wants a new decision-making structure at Media Markt-Saturn to abolish a situation that gives the founders of the chain a joint role in agreeing strategy – in spite of Metro’s owning more than 75 per cent of the shares. Metro’s belief is that the effective veto wielded by the minority owners has served to delay, in particular, Media Markt’s response to the challenge posed by internet commerce.
Media Markt brought in €625m ($887m) of Metro’s €2.4bn of underlying pre-tax earnings last year, and almost €21bn of its €67bn in sales. This year the chain is struggling, with Metro complaining of a steep fall in its second-quarter earnings.
Attempts to change the structure have brought Metro into a legal battle and a war of words with Erich Kellerhals, one of the chain’s founders, who said this weekend that the idea he was blocking progress was a “fairy story”.
For Mr Kellerhals, Metro’s attempt to win decision-making power is in effect a way to win full rights without paying the right price.
“It was always clear that we wouldn’t have sold if it had meant we had to give up our right to make joint strategy,” Mr Kellerhals told the Welt am Sonntag newspaper on Sunday. “I am not Mr Cordes’ scapegoat. He gives the impression that Media-Saturn has suddenly become a case for an urgent clean-up. That is simply not true.”
While Media Markt has agreed to extend its online offering, buying an internet retailer called Redcoon, Mr Kellerhals has resisted attempts to agree Media Markt’s purchase of two smaller internet companies. He said this weekend that those deals would be a distraction for management. A court case about control at Media Markt is ongoing.
With reports last week that Mr Cordes could no longer rely on Metro’s supervisory board to renew his contract, the chief executive did win backing for his approach at Media Markt from Jürgen Kluge, supervisory board chairman at Metro.
“We are convinced that another governance structure would best contribute to the entrepreneurial future of Media-Saturn and the increase in the value of the company, to the benefit of all partners,” Mr Kluge said.
The backing is important, since Mr Kluge is chief executive of Haniel, the family-owned company that owns more than 34 per cent of Metro and controls the retailer through pooling voting rights with another big shareholder.
People in Metro acknowledge that Mr Cordes knows he has a tough fight on his hands, with many company employees also unsettled by long-standing doubts about important subsidiaries. Real, Metro’s supermarkets business, and Galeria Kaufhof, its department store group, are in effect up for sale. Talks with potential buyers continue – but have been sporadic amid the financial crisis.
The 43 per cent fall in Metro’s share price this year is also a source of disquiet for Mr Cordes. Analysts at Bernstein Research last week said that Metro’s share price fall – giving it a market capitalisation of about €10bn, much less than their estimated sum-of-the-parts valuation – had been overdone. “We remain convinced that Metro is a fundamentally attractive business,” they wrote.
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