Sweetened bid for HBC by Baker-led shareholder group gets board’s approval

The Hudson’s Bay Co. board agreed Monday to a sweetened privatization offer that values the retailer at about $1.9 billion, but the deal will require support from minority shareholders if it is to be accepted.

The board said a group of shareholders led by HBC executive chairman Richard Baker, which holds about a 57 per cent stake in the retailer, has agreed to pay $10.30 per share in cash to take HBC private.

The bid is nine per cent higher than an earlier offer of $9.45 per share by the group, following objections from Toronto-based Catalyst Capital and Land & Buildings Investment Management of Stamford, Conn.

Catalyst and L&B didn’t immediately respond to requests for comment on the latest development.

The deal is subject to the approval by a majority of the minority of HBC shareholders, excluding the shareholder group and its affiliates, and approval by a 75 per cent majority vote at a special meeting of shareholders.

HBC’s board said the Baker-led group’s offer provides minority shareholders with “immediate and certain value” at a time of uncertainty as the retail industry evolves rapidly.

Financial losses

HBC’s management, which hasn’t commented publicly on the going-private initiative, reported last month that the owner of the Hudson’s Bay chain of department stores as well as the New York-based Saks Fifth Avenue luxury chain and Saks Off Fifth fashion outlets lost $984 million in the quarter ended Aug. 3.

The third-quarter loss amounted to $5.35 per share and compared with a year-earlier loss of $280 million or $1.45 per share.

HBC’s overall third-quarter revenue totalled $1.9 billion, roughly the same as a year ago, while comparable store sales fell 0.4 per cent, as comparable sales at the Hudson’s Bay chain fell 3.4 per cent in the quarter.

“Continued industry headwinds and the deterioration in operating performance have negatively affected the company’s financial results,” the board said in a statement Monday.

It added that “the company will be required to invest substantial capital and resources to remain relevant to its customers and successfully compete.”

That has been the main message of the Baker-led group, which includes Rhone Capital, WeWork Property Advisors, Hanover Investments (Luxembourg) and Abrams Capital Management.

However, opponents of the Baker group have argued that they will essentially be able to fund the privatization from proceeds of HBC’s sales of its European operations — announced the same day as the initial offer.

The Baker group’s revised offer represents a premium of 62 per cent compared with where the shares were trading before the shareholder group’s initial proposal announced June 10, according the HBC board.

However, the board also said TD Securities had provided a special committee of directors with an estimate that HBC’s common shares had a fair market value of between $10 and $12.25 each, as of Oct. 20.

HBC shares gained six per cent in early trading, but remained below the revised offer price. They traded at $10.05, up 60 cents, at the Toronto Stock Exchange, but below a 52-week high of $10.76.

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