Hudson's Bay set to bid for Metro's Kaufhof soon

Canadian retailer Hudson's Bay plans to make a binding bid for Metro's department store chain Kaufhof as soon as possible, according to a source familiar with the matter.

The company, which operates Hudson's Bay in Canada and U.S. luxury chains Saks Fifth Avenue and Lord & Taylor, intends to invest heavily in the chain, in particular extending its online business and better integrating it with stores, the source said.

It does not plan to close any of Kaufhof's 120 stores in Germany and 16 in Belgium and could use the deal as the foundation to expand further into Europe, with further purchases possible, the person added.

The Canadian department store operator's new chief executive Gerald Storch said on Tuesday Hudson's Bay was keen to expand abroad, but did not comment directly on Kaufhof.

Metro said last month it was in talks about selling Kaufhof and repeated that conditions for a sale were an appropriate price, a convincing concept for the future of the chain, and solid financing.

Metro has long been keen to sell Kaufhof to focus on its core cash-and-carry and consumer electronics businesses.

Sources previously told Reuters that Hudson's Bay had made a non-binding offer with a value similar to a separate bid made by Austrian investor Rene Benko, who offered 2.9 billion euros ($3.3 billion) for Kaufhof. Sources say Metro could make a decision on the sale this month.

Benko already owns struggling German department store chain Karstadt and is expected to merge the two businesses if his bid is accepted, potentially resulting in store closures and job losses.

Hudson's Bay, which the source said had been eyeing Kaufhof since 2006, does not expect closures or to shed any of Kaufhof's 21,500 staff if its bid is accepted, with the source adding it would keep current management as it is doing a good job.

The source said the timing was right for a deal due to the weakening of the euro, with Germany "the best choice" for an initial European expansion.

Hudson's Bay is also used to dealing with trade unions, which play a strong role in Canada, the source said. German union Verdi is trying to block the closure of Karstadt stores that is part of a restructuring plan for that group.

Hudson's Bay is conscious of cultural differences but believes it can avoid the problems that ultimately forced Wal Mart to retreat from Germany, the source said.

The insider said Hudson's Bay wanted to double investment in stores and ecommerce, aiming to match the 15-20 percent of sales Hudson's Bay already makes online. Kaufhof invested an average of around 150 million euros a year over the last three years.

The Canadian firm also plans to expand the offering of shoes in Kaufhof stores, but does not want to turn the business into a luxury chain or increase concessions, the source said.