KarstadtQuelle Gets the Go-Ahead

The restructuring plan for embattled German retailer KarstadtQuelle can proceed. A group of six minority shareholders, who had formally objected to an injection of fresh capital aimed to ensure the group's survival, have given their approval.

"We have reached an agreement with the differing shareholders," group spokesman Jörg Howe told the press following the tenacious negotiations Thursday. He said KarstadtQuelle could assume that the capital increase and a line of credit totalling €1.75 billion ($2.3 billion) were ensured for three years.

At a turbulent emergency shareholder meeting earlier in the week in Düsseldorf, KarstadtQuelle overwhelmingly won the vote for the rights issue it needed to keep its banks on board. But the objection by the group of six would have delayed the share issue by a crucial period. This would have endangered the line of credit and, in the words of supervisory board head Thomas Middelhoff, possibly led to the group's insolvency.

According to Howe, KarstadtQuelle would also make efforts to create additional financial leeway. Now, it could attend to its "very important, for us almost vital Christmas business," he added.

Understanding for shareholders' interests

KarstadtQuelle's management board said it showed "understanding" for the dissenting shareholders’ point of view. In a statement issued Thursday, it said that "the objections raised by the shareholders represent an acceptable and normal concern for shareholders’ interests."

The board has pledged to ensure that the issue price of the new shares will not fall below the amount of €5.38. This will ensure that the company amasses at least €500 million without an additional capital increase.

The shareholders had initially objected that the planned minimum issue price of only €4.00 per share was "unacceptably low."

The board said it would also issue additional information of the report by Roland Berger on the reconstruction concept. Shareholders had protested that initial information at the general meeting with regard to the capital increase was inadequate and contradictory.

No financial compensation

In addition, KarstadtQuelle's shareholders can expect an explanation. "The management board will present in the 2004 annual report a detailed risk report which goes into the causes of the crisis that the company finds itself in at present," the group said. The shareholders will also be kept up to date about the position and progress made with the reconstruction measures.

In light of these agreements, the dissenting shareholders declared that no further legal measures against the resolution on the capital increase would result from their formally registered objection.

Howe vigorously dismissed speculations that shareholders just wanted to get money out of their objection. "No money exchanged hands," he said.

The board said it now assumed that the capital increase could go ahead as planned.