By Georgina Prodhan and Emma Thomasson
FRANKFURT (Reuters) - German retailer Metro (DE:MEOG) has proposed to split itself in two, separating its wholesale and food business from its consumer electronics chain to help each focus and grow faster, sending its shares sharply higher.
Europe's fourth-biggest retailer has spent the last few years restructuring and selling non-core businesses such as its Kaufhof department stores, to focus on its Metro cash-and-carry business and Media-Saturn consumer electronics chain.
Metro shares jumped 7.5 percent by 0754 GMT, scoring the biggest gain in the German mid-cap index (MDAXI) and heading for their biggest one-day gain in more than two years.
"We see this as a positive move ... There were limited synergies between the two businesses and a conglomerate discount which can now unwind," Bernstein analyst Bruno Monteyne said.
The split could also help resolve a long-running battle over Metro's management of Media-Saturn with its billionaire founder, Erich Kellerhals, who still owns a stake of close to 22 percent.
Metro said the two businesses had minimal operational overlap, and the split should help them concentrate on their own activities and create possibilities for acquisitions.
"It's the logical next step in the transformation of the Metro group," Chief Executive Olaf Koch told journalists. "We have done all possible preparatory measures over the past weeks and we're convinced it is do-able."
The cash-and-carry business runs 750 stores in 21 countries, serving hotels, restaurants and independent traders. It will be spun off together with the struggling Real hypermarket chain, which Metro has tried and failed to sell in the past.
MORE EXPOSED
The new food and wholesale business will be more exposed than the combined group to Russia, making up more than a quarter of operating earnings, according to Bernstein's Monteyne, compared with about 18 percent now.
Metro was forced to ditch plans to list its Russian cash-and-carry business, the country's fourth-biggest retailer behind X5 (L:PJPq), Magnit and French chain Auchan, after the Ukraine crisis erupted.
The wholesale and food entity will be run by Koch after the demerger, while Media-Saturn will be run by its current chief executive Pieter Haas.
Kellerhals has tried to push out Haas, also a Metro board member, and has called on Metro to inject some proceeds from recent asset sales into Media-Saturn. Koch said Kellerhals had been informed of the plans for the split.
"This split makes it easier to find a common solution with Kellerhals, potentially giving him the chance to buy the rest of the now separate entity out," said Bernstein's Monteyne.
Kellerhals has often said he would like to buy back the chain although Metro says he has never made a concrete offer.
The proposed split, under which shareholders will receive one share in each company for each existing share, needs to be approved by the management and supervisory boards.
Metro said its three anchor shareholders - Haniel, Schmidt-Ruthenbeck and Beisheim - had indicated they would support the process, which it aimed to complete by mid-2017.