FRANKFURT German retailer Metro AG (MEOG.DE) is selling some hypermarket operations in eastern Europe to French rival Auchan in a 1.1 billion euro ($1.4 billion) deal that will help it cut debt and focus on core activities.
Metro has long stated its wish to sell its Kaufhof department stores and Real hypermarkets divisions and focus on its cash & carry and consumer electronics stores, which it believes have better expansion prospects.
Auchan, controlled by the Mulliez family, one of France's wealthiest, said the deal would double its store presence in central and eastern Europe - a key area for development alongside western Europe and Asia.
Metro is battling problems on several fronts, not least the uncertain spending environment in its home country. Despite consumer confidence remaining solid, shoppers do not seem keen to spend. October retail sales in Germany fell more than expected.
Metro was also demoted from the index of leading German shares in September and downgraded by Moody's and Standard & Poor's following a profit warning in October.
Net debt that is relevant to its ratings would be reduced by 1.5 billion euros following the transaction, Metro said on Friday. Balance sheet net debt stood at 7.7 billion euro at the end of September.
It will receive a cash inflow of around 600 million euros from the transaction, which should be completed next year once it has received approval from the necessary authorities.
Auchan is buying 91 Real hypermarkets in Poland, Russia, Romania and Ukraine. Real has sales of over 2.6 billion euros in those four countries and employs around 20,000 people.
Auchan has 98 hypermarkets with more than 65,000 employees in those countries.
Shares in Metro were up 2 percent at 22.02 euros at 6:56 a.m. EDT, outpacing a 0.6 percent rise in the MDax for medium-sized German companies .MDAXI.
(Reporting by Victoria Bryan, Matthias Inverardi and Dominique Vidalon; Editing by Helen Massy-Beresford)