- Posted by jbehrendt on April 1, 2009
The Client
The client is a German retail company with a turnover of around 40 billion €, 200,000 employees and a presence established in more than 10 European countries. Distribution of goods takes place both in supermarkets, managed under one common brand, and in discount stores. Based on their historical developments, the company consists of more then 700 legal units, with two parallel parent companies where shareholder structures are not fully identical. The supermarket business in Germany is mainly operated by one of these parent companies, and by another holding company being itself the subsidiary of both parent companies. Supermarket business, discount business and special stores business are, among others, managed as separate strategic business units (SBU's). The management structure follows the SBU structure, with further differentiation of activities within a SBU.
The problem
The current legal structure for the supermarket business in Germany requires significant legal and organizational efforts, since goods and services are continously transferred between two, and sometimes more, legal units. In order to avoid tax problems, all transactions, even if they are between two group companies, are to be dealt with at arm's length principle. The same goes for legal issues - despite being part of one single organizational unit in the management structure, in legal terms two units exists, each of them requiring their own management, signature rights, and conclusion of contracts between them. In addition, very high efforts are necessary for following up all internal transfers of goods and services, to calculate and invoice them properly, and to manage the related accounting work. The client therefore intends to align legal and management structure by transferring the German supermarket business into one single unit.
An additional problem is caused by the handling of logistics. The separation of the retail business into different SBU's took place only recently, mainly separating the supermarket from the discount business. The logistics, however, is so far not separated, one logistics unit with a common set of warehouses supports both supermarket and discount units. In order to achieve additional cost savings, and to align the structures and processes in logistics with the specific needs of the supermarket and the discount business, respectively, it is planned to separate logistics into individual parts being part of their respective SBU's within the next two years.
Project history
In April 2008, a small workgroup of internal managers under my project management was commissioned with analyzing the situation and problems of the German supermarket business, and with mapping different alternatives for a possible future structure. The group was explicitly told to consider all relevant legal, HR, tax, organizational etc. aspects in their work, and to provide a decision matrix for the board showing the advantages and disadvantages of each alternative in detail.
After intensively working for 4 months, the group had analyzed and, to a high extent, already eliminated several alternatives, at the same time preparing a first extensive analysis report for the board. In August 2008, the board of the client approved a suggestion according to which all supermarket and all logistics activities of both legal units would be transferred into a newly-to-established common subsidiary, decreasing the function of the existing two companies to holding and other central functions. In order to allow sufficient flexibility and tax neutrality for the upcoming separation of the logistcs unit. an additional new discount logistics unit need to be formed to accomodate newly to be established logistics warehouses for the discount business, whereas the separation of the existing logistics units needs to be shifted to 2010. The overall transactions should take place making use of special legal and tax regulations in Germany allowing to transfer all legal rights, among them contractual relationships with more then 40,000 business partners, in one single act, and to avoid dissolving existing hidden reserves which otherwise would create a high additional tax burden. Last but not least, it had to be ensured that the transactions would take place without any additional cost for personnel due to changed collective or individual labour agreements.
The detailed analysis and conceptual work started in September 2008, with the target of finishing the detailed conceptual design until December 2008. However, until then, not all details were clarified - extensive bundles of participations had to be reviewed, the situation of own, rented and leased locations for warehouses and stores had to be clarified, the treatment of the brands used internally, and their possible transfer or, alternatively, internal licensing models had to be defined, etc., etc. In January 2009, the board approved the detailed conceptual design derived so far, extending the time for the remaining work until April 2009. The target was that, until then, not only all missing details were clarified, but the carve-out financial statements, the carve-out documentations, requests for binding advices from the tax authorities, renewed collective labour agreeements, and valuations by external parties for both carve-out objects had to be completed. The final target was to approve these details in April 2009, discuss and decide upon it in all relevant company bodies like boards, supervisory boards, general assembly meetings etc. until June 2009, and to register the carve-outs with the commercial code until August 2009 - the last possible legal date - for an effective date as of 31.12.2008.
