René Benko fears a stigma: bankruptcy. The Austrian multi-billionaire avoids this word as much as possible when it comes to Galeria Karstadt Kaufhof, the department store chain that belongs to the Benkos Signa Group. A protective shield procedure was initiated, announced the stricken company on Wednesday. This is how Galeria is to be protected from the “hard economic consequences of the corona crisis”. In fact, the pleasant sounding “umbrella” is a bankruptcy procedure. The management reorganizes the group on its own, supervised by an administrator.
Will this bankruptcy procedure give the already badly hit company the rest? Or is it – conversely – the ticket to the future for Germany’s last remaining department store chain?
First of all, there are many indications that this is the death blow for the problem-laden, highly indebted group. Because the department stores are going badly – a restructuring plan revealed last year that not only Kaufhof’s business figures are below plan, but also those of Karstadt – although the management there has been renovating the chain for years. By joining the two houses in January, owner Benko wanted to turn the corner – and even pumped more money into the company than he originally planned.
The shutdown – a line through the renovation calculation
In early 2019, Karstadt and Kaufhof merged under the umbrella of Benkos Signa-Holding. The restructuring plans sounded promising thanks to the planned synergy effects and the targeted increase in profits. But the shutdown in the wake of the corona pandemic dashed all hopes. Like all stores, all department stores have been closed since March 18. Benko’s restructuring bill had failed.
Nevertheless, it was Benko who wanted to avert the bankruptcy proceedings with all his might, says an insider who knows the investor well. The bankruptcy had a reputation for him like the plague. But why? Because it would have been the end of the group? Or is Benko possibly worried primarily about his image?
“Benko is very keen on its reputation, under no circumstances does it want to give up control,” says an investor expert. He is now forced to do this. Even when Kaufhof was taken over for the merger with Benko’s previously purchased department store chain Karstadt, experts advised the investor to send Kaufhof into bankruptcy. That way he would have got rid of most of the company’s high debts in one fell swoop. Instead, he preferred to make up for the Kaufhof minus, in 2019 with around 200 million euros. The investor feared for his reputation even back then, it is said from his environment.
The own image is the most important asset of the Austrian who got rich with real estate deals. If investors who give Benko their money lose their trust, the entire Signa empire built up over the years with real estate and retail companies could be at risk – especially now that the corona crisis has affected all sectors of the economy.
Against this background, it also becomes clear why the group initially tried to get a government loan in the hundreds of millions from the state development bank KfW since the shutdown.
But the loan apparently failed due to resistance from Commerzbank and other house banks, which according to several insiders had made unacceptable demands. Although the banks only bear ten percent of the risk for the promotional loans, they would have asked for collateral “that went far beyond this share,” it says. You couldn’t do that.
On request, Commerzbank does not want to comment on the events and refers to banking secrecy. In any case, the bank’s risk with the ailing department store group was obviously too great. In general, credit institutions are currently shying away from trading companies, industry insiders say, even with better-performing companies.
Bankruptcy – a wholesome pause button
In the end, Galeria was the only way out of the protective shield procedure. However, going into bankruptcy may not be as negative as it looks at first glance. For Galeria it could even act as a healing pause button.
While the company would have loaded a new ballast of debt with the KfW government loans, the department store group can now shake off old liabilities. If the business starts again, the new loans will not put an additional burden on the company, which is already burdened with debt.
The fact that Galeria has already suspended rental payments on a large scale could also come in handy for the group. Works councils have recently negotiated site security with the company. But this is based on existing rental contracts, it says in the group environment. If a landlord terminated these contracts due to a lack of rents, Benko could easily get rid of unloved locations.
Danger to wages
In the end, however, the victims of bankruptcy are likely to be many of the approximately 28,000 employees. Galeria can now pay wages from April to June with bankruptcy money. Employees continue to receive their net salary instead of the lower short-time work allowance. On the other hand, the group can now override the labor agreement that was laboriously negotiated for the merger of Karstadt and Kaufhof.
The service trade union Ver.di reacted accordingly alarmed: “Collective agreements and the involvement of the workforce are an existential foundation”, said Stefanie Nutzberger, Ver.di federal executive. The workers were surprised by the announcement of a protective shield procedure and had to be closely involved immediately with the works councils and their union.
Three months – Schlecker has shown that that’s not enough
The Group’s calculation for insolvency could therefore be to get rid of the less profitable locations and cut the cost of salaries. So, at least insiders hope, the department store chain could start again in July as refurbished as possible. For this, however, a restructuring plan would have to be in place within three months, which would open up a better future for the group than before.
However, experts consider this to be ambitious. “At Schlecker, we saw that three months is far from being sufficient to restructure a wholesale company,” warns a reorganization expert. “This period should urgently be extended by law. It is too short.”
And even if the renovation works at top speed, two further developments could torpedo the restart: During the corona crisis, shopping behavior is likely to shift even more online than before, retail experts expect – not a good development for the massive department stores. In addition, the looming economic crisis is likely to dampen consumer confidence significantly – and many customers prefer to keep their money together.
Bankruptcy would be a ticket to the future – but an extremely uncertain one.