Arcandor: Committed to creating value... sure

Added in 2023 to the portfolio

How to sell your own department stores and then go bust paying the rent.

Arcandor began life as KarstadtQuelle, a sturdy German institution: Karstadt the department stores, Quelle the mail-order catalogue that arrived in every household like a phone book of aspiration, plus a controlling 52% of Thomas Cook, the travel group. In 2007 it rebranded itself “Arcandor” – a coined, vaguely Latinate word that should have served as the first warning. (And probably the cost in creating this name) Companies that rename themselves into nonsense are usually mid-pivot away from something true.

Enter Thomas Middelhoff, a CEO with bottomless self-regard, fresh from Bertelsmann and a spell in private equity. His big idea was the financier’s favourite conjuring trick: sale-and-leaseback. In 2006 the group sold its crown-jewel real estate – Karstadt’s premium stores, including KaDeWe in Berlin and Oberpollinger in Munich – into a joint venture (“Highstreet”) steered by Goldman Sachs’s Whitehall and friends. A wall of cash today; a rising rent bill forever.

This is alchemy run in reverse. You take a company that owns its buildings – boring, solid, recession-resistant – and transform it into a company that rents its buildings from the people you just paid. The cash looks marvellous in the year you book it. The lease looks murderous in every year thereafter, especially once retail softens and the rents ratchet upward regardless.

Middelhoff played the part with gusto, commuting by private jet and helicopter – conduct that would later put him in the dock. He left Arcandor in March 2009, pronouncing his work complete. It was complete in roughly the sense that a demolition is complete.

By June 2009 the bill arrived in the most poetic form imaginable: Arcandor announced it could no longer pay the rent on the stores it had itself sold. On 9 June 2009 it filed for insolvency – at the time one of Germany’s largest. Quelle, the great catalogue, was wound down by year-end; tens of thousands of jobs went; the Thomas Cook stake was sold into the wreckage.

The afterlife is its own dark comedy. Karstadt survived insolvency, was passed from hand to hand, and eventually landed in the arms of René Benko’s SIGNA – which then, in 2023, also collapsed (see the neighbouring exhibit). Some assets, like LTU in our aviation wing, simply carry a curse: everyone who touches them eventually files paperwork.

Middelhoff’s personal epilogue was severe. In November 2014 the Essen Regional Court convicted him of breach of trust (Untreue) and tax evasion across 27 counts, sentencing him to three years; he served two years and seven months. The man who pledged to “create value” created, in the end, mostly case law.

There is a beautiful Documentation done by local TV on a man behind the scenes (Josef Esch): https://www.youtube.com/watch?v=rvEvkG_1JyQ

and couple of Books on Thomas Middelhoff: "Schuldig. Vom Scheitern und Wiederaufstehen"