HBC Europe will merge retail operations with Karstadt. Credit: Christian Alexander Tietgen.

Hudson’s Bay Company (HBC) has signed definitive agreements to merge its European retail operations with German department store chain Karstadt Warenhaus.

Following the completion of the deal, HBC will hold 49.99% interest in the combined entity.

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The merged entity will become a well-capitalised retailer featuring Galeria Kaufhof and Karstadt brands from the department store chain along with HBC and Signa banners.

Karstadt Warenhaus CEO Stephan Fanderl will lead the new retail entity in collaboration with a German retail operator, while HBC and Signa together hold six board seats and have joint oversight of all major decisions.

HBC chief executive officer Helena Foulkes said: “We are creating a stronger retail entity that is better positioned to capitalise on market opportunities. This transaction builds on our recent efforts to streamline HBC and provides a clear path forward to improve our European operations.

“We are taking strong action to strengthen our retail portfolio and enhance HBC’s profitability.

“This transaction builds on our recent efforts to streamline HBC and provides a clear path forward to improve our European operations.”

“The creation of a stronger operator in Europe allows us to focus our attention on our North American banners, helping to ensure we are making the right strategic decisions to drive performance and profitability within those businesses.”

Signa will also establish a 50-50 joint venture by purchasing 50% interest in HBC’s German real estate assets.

The merger of both the retail companies and the formation of the real estate joint venture are subject to approval from European competition authorities and satisfaction or waiver of customary closing conditions.

The deals will close within the next three months.