Merger to Consolidate German Mail-Order Market

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FUERTH/ESSEN, Germany - A planned merger between German retailers will put two of the nation's largest mail-order houses under one corporate umbrella.

The deal, announced last month, merges Karstadt AG, Germany's largest department store chain, with the privately held Schickedanz Group's mail-order business. The new company would have combined sales of 33 billion German marks ($18 billion).

The two mail-order companies, Schickedanz's Quelle and Karstadt's Neckermann - respectively No. 2 and 3 in Germany - had combined sales last year of a little less than DM 15 billion ($8.3 billion).

Although Neckermann and Quelle will retain their brand names, the merger reduces the number of giant German mail-order firms to the Karstadt Quelle AG combine and Otto Versand, the world's largest mail-order house.

"While we are following a clear-cut two brand strategy, there are obvious synergies within the larger framework of the new company not possible in a mere cooperation," Schickedanz spokesman Dr. Andreas Neuner said.

"We plan to keep the two companies as competitors because we think that makes a certain amount of sense, but some things the two are obviously going to do together, for example, the development of new markets abroad."

One anomaly in German mail order is that Otto may be the world's largest mail-order house but Quelle is Europe's largest, a position the planned merger will solidify.

Otto's pre-eminent market position rests upon extensive overseas holdings including Spiegel, Eddie Bauer and Crate & Barrel in the US and Otto-Sumitomo in Japan. It bought UK cataloger Freemans last month.

Although Quelle has the more extensive European network with 90 subsidiaries or companies in which it has a stake scattered across 16 countries, Neckermann too has subsidiaries outside Germany.

No thought has been given yet to expanding the new combine beyond Europe, although "we are not excluding anything," Dr. Neuner said, "because we want to force feed our internationalization process."

Karstadt Quelle also intends to expand the number of separate catalogers who specialize in certain areas like natural fiber apparel or working attire.

Both companies are active in new media ranging from home shopping to online catalogs and malls.

Quelle already racks up respectable online sales. The company does not break out figures since it is privately owned. Karstadt has been equally active in getting its products online.

It looks as if the Schickedanz Group will control the new company since it already owned or had voting rights to some 48 percent of Karstadt's outstanding shares.

"As a result of the merger Schickedanz's stake in Karstadt will increase," Neuning said. "I leave it to you to draw the conclusions." Shareholders will vote on the proposed merger at Karstadt's annual meeting in July.

German analysts said other mergers will follow as German business prepared for more global competition.

"This process of industrial concentration is no longer bound by national frontiers. It is a global phenomenon that cannot be contained," Neuner commented.

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