Metro drops after saying it will sell Galeria Kaufhof to Hudson's Bay for EUR2.83bn

Shares in German retailer Metro AG fell 3% on Monday after the company said it is selling its Galeria Kaufhof department stores and its Belgian subsidiary, Inno, to Hudson's Bay Company for €2.83bn .The transaction has been approved by the board of directors of HBC as well as the supervisory board of Metro and is expected to close by the end of the third quarter of 2015.Metro said that through the sale, it will achieve a positive cash inflow of around €1.6bn and significantly reduce its net debt by around €2.7bn. It also said it expects the sale to have a positive effect of around €700m on earnings before interest and tax.Canada-based HBC had been in discussions to take over Galeria Kaufhof for months.Societe Generale said that while the deal was done at a good price, it should not come as too much of a surprise for investors as it was already largely factored in.In addition, it said that in the medium-term, the divestment will probably lead to a rise in the group's risk profile."Kaufhof offered good visibility, a resilient EBIT contribution (10% of group EBIT) and strong cash flow generation," said the bank."Thus the disposal will likely put more pressure on management to successfully turn around C&C Germany and continue to rebuild Metro Saturn's profitability," it added.However, Nomura it was "surprised" that the market had taken the news badly, as the disposal price is more than most analysts had in their sum of the parts."The last estimated price reported in the press, on 19 May, was €2.7bn, and an earnings-based valuation for Kaufhof would probably be nearer € 1.5bn," said the Japanese bank."We would be buying into today's weakness/lacklustre reaction. Kaufhof's disposal is accretive and strategically positive," it said.