Exclusive: Hudson's Bay in talks with Signa for Kaufhof joint venture - sources

By Greg Roumeliotis and Jessica DiNapoli

NEW YORK (Reuters) - Saks Fifth Avenue owner Hudson's Bay Co is in discussions with Austrian property and retail group Signa Holding GmbH about a joint venture for its German retail chain Kaufhof, two people familiar with the matter said on Monday.

Canada-based Hudson's Bay, which rejected Signa's 3 billion-euro ($3.7 billion) bid for Kaufhof earlier this year, has been looking to improve its financial performance as shoppers move away from brick-and-mortar department stores and toward e-commerce giants like Amazon.com Inc .

The joint venture for Kaufhof being discussed by the companies calls for Signa's department store operator Karstadt to acquire half of Kaufhof's property company, and 51 percent of its operating company, with the option to buy the rest at a later date, according to the people, who asked not to be named because the matter is private.

If the talks are successful, a deal could be announced in the next few weeks, the people added. There is no guarantee the talks will result in a deal, and the negotiations could still fall apart, the sources cautioned.

Signa could not immediately be reached for comment. Hudson's Bay declined to comment.

Shares of Hudson's Bay rose briefly on the news but closed 2.6 percent lower at C$11.57 on Monday.

Jonathan Litt, chief investment officer of activist hedge fund Land & Buildings, said on Monday that assuming the deal has a value of 3 billion euros, the total of Signa's earlier offer for Kaufhof, the transaction could result in up to C$10 per share to Hudson's Bay stockholders when combined with other recently announced deals.

Land & Buildings has been critical of the company's strategy, urging it last week to extract more value from its substantial real estate holdings.

Hudson's Bay has been reshuffling its department store brands and shoring up cash by making deals. It said earlier this month it would shutter 10 Lord & Taylor stores, with the brand's flagship New York City building sold for $850 million last year.

It also sold its luxury e-commerce shop Gilt to peer Rue La La.

Hudson's Bay Chief Executive Helena Foulkes said on an earnings call with investors in June that "everything's on the table in terms of focusing on driving improved profitability for the business."

As of May 5, Hudson's Bay had C$3.8 billion ($2.85 billion) in loans and borrowings on its balance sheet. Its debt to profit levels have been higher than the industry average.

Hudson's Bay bought Kaufhof in 2015 for 2.8 billion euros from German retailer Metro AG .

It financed the deal with a joint venture that acquired the German retailer's real estate, becoming its landlord.

But Kaufhof struggled to make the higher rent payments as shopper numbers fell.

Hudson's Bay is also working with consulting firm AlixPartners LLP on cutting costs and reforming its business, Reuters reported in May.

($1 = 1.3319 Canadian dollars)

(Reporting by Greg Roumeliotis and Jessica DiNapoli in New York, Additional reporting by Matthias Inverardi; Editing by Cynthia Osterman and Matthew Lewis)