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Twist to Arcandor property sale as Pirelli denies deal to create luxury European department store group

Pirelli Real Estate has said no agreement has been reached to create a European Retail Premium Group contrary to a statement issued by German retail company, Arcandor.

The sale of Arcandor’s 49 percent stake in a retail property joint venture with Goldman Sachs’ Whitehall Fund took a twist last night after one of the parties to the deal issued a denial over plans to create a luxury European department store group.

Pirelli Real Estate said no “Letter of Intent” had been signed regarding the exchange of shares between Arcandor’s Karstadt chain, Italy’s La Rinascente and France’s Printemps. The denial came a few hours after a contrary assertion by public company Arcandor.

The embarrassing situation arose after the German retailer said it had signed a Letter of Intent to sell its stake in a real estate joint venture with Whitehall Fund to a consortium comprising Pirelli Real Estate, RREEF and Italy’s Borletti family. It went on to reveal a share swap deal leading to the creation of a luxury retail group.

In its statement, Arcandor said Pirelli, RREEF and the Borletti Group had agreed to work together with the aim of taking advantage of synergies between different department store operations. Arcandor’s Karstadt business would acquire a 25 percent stake in La Rinascente and Printemps, while the real estate consortium would take a 25 percent stake in Karstadt’s new Premium Group, owned by Arcandor.

Pirelli, however, issued a statement insisting no letter of intent had been signed to that effect. It said: “Pirelli would like to clarify that no agreement whatsoever has been reached regarding an exchange of shares between Karstadt, La Rinascente and Printemps. A non binding letter of intent was signed by Arcandor, Pirelli RE, RREEF and the Borletti Group for the sole purpose of evaluating whether or not the conditions could develop in the future for the creation of a European premium retail group. Furthermore, please note that neither La Rinascente nor the shareholder Investitori Associati signed the previously mentioned letter of intent. In the event it is deemed opportune to move forward, the transaction will be subject to the approval of La Rinascente and all of its shareholders.”

La Rinascente is owned 46 percent by Italian private equity firm Investitori Associati, while RREEF owns 30 percent, Pirelli 20 percent and the Borletti Group 4 percent. The investors acquired the department store group from a joint venture between French retailer Auchan and Italian company, IFIL Finanziaria di Partecipazioni for €888 million in 2005.

Pinault-Printemps- Redoute, now renamed PPR, is owned by RREEF and Borletti having completed a two-stage acquisition in 2006 and this year.

The revelation of a plan to create a premium European retail group is thought to have led Pirelli to request a clarification statement. However, this is undertstood to have been rebuffed. Arcandor was today standing by its statement.

The non-binding deal to sell a 49 percent interest in the €4.5 billion property JV is one detail the two parties can agree on.

The JV called HighStreet owns a number of department stores in Germany including the famous Berlin KaDeWe. Arcandor says the value of real estate and other assets owned by HighStreet is approximately €4.7 billion. The sale of its 49 percent stake will reap around €800 million for the German company.

Arcandor decided to sell its stake in the property joint venture earlier this year just as the credit crunch hit. Chief executive Thomas Middelhoff said: “We are extremely satisfied with the basis upon which the real estate transaction will be consummated. We managed to achieve a valuation in line with our initial expectation and significantly higher that the current book value of the assets despite the financial market crisis.”

As part of a corporate makeover, not only is Arcandor disposing of its stake in the property JV, it is also combining several department stores across Germany into its newly founded Premium Group.

Arcandor says the alliance with the acquirers of its 49 percent sake is aimed at creating “a unique European department store portfolio and to leverage the high synergy potentially linked with this.” Peter Wolf, chairman of Karstadt Warenhaus said: “Together with our partners, we will rapidly expand the Premium Group further ultimately setting a clear market leadership in Europe’s luxury segment.”

RREEF declined to comment on the talks. At this point the agreement is non-binding.

Apart from the confusion over the “agreement” to create a luxury European department store group, there  also remains a question mark over what happens to the 51 percent stake in the property JV owned by Whitehall Funds. It is thought that a deal to sell Arcandor’s 49percent in the JV requires consent from the Goldman Sachs’ managed fund, but Whitehall has so far issued no statement on whether it supports the sale.