Saks Fifth Avenue owner Hudson’s Bay agrees buyout deal
Chairman paves way to take store operator out of public spotlight for turnround
Hudson’s Bay Company, the Canadian department store business that also owns Saks Fifth Avenue, agreed to a buyout by a consortium of investors led by its chairman on Monday, in a deal that would allow it to navigate an increasingly challenging retail and real estate market out of the public spotlight.
The consortium offered to buy the 43 per cent of HBC it does not already own for C$10.30 per share, a 62 per cent premium to the group’s share price before the consortium led by executive chairman Richard Baker made its interest in acquiring the entirety of the company known in June.
The deal values the retailer’s equity at C$1.9bn (US$1.45bn). HBC carried about C$6.6bn of net debt as of August, according to Bloomberg data.
The buyout price falls near the low-end of an acceptable range that a special committee of HBC board members had prepared by its advisers, underlining the continued struggles facing retailers, and department store companies in particular.
HBC, which claims the title as the oldest company in North America, must now convince minority investors to approve the offer. Some influential shareholders, including Catalyst Capital Group, a Canadian private equity investment firm, which owns 16 per cent, had come out against an earlier offer from Mr Baker that valued HBC shares at C$9.45 apiece. Catalyst, which complained the initial bid undervalued the retailer’s property interests, said on Monday it was evaluating the latest proposal.
Activist investor Land & Buildings, which also lambasted the earlier buyout proposal as “woefully inadequate”, was also evaluating the new bid. A person briefed on the firm’s thinking said the C$10.30 offer “at first blush seems to undervalue the company”.
HBC has worked to cut its debt burden and breathe new life into some of its brands, including luxury department store Saks, but acknowledged on Monday it would still need to invest “substantial capital” to compete with rivals. The group noted in an investor presentation on Monday that there was little equity value in the company apart from its real estate, including its flagship Saks Fifth Avenue location.
HBC added its work to restructure its business would constrain its ability to return capital to shareholders over the next three years. “The special committee is confident that this transaction represents the best path forward for HBC and the minority shareholders,” said David Leith, who chairs the committee.
Department store operators have watched as the makers of luxury goods do more of their business either in their own stores or through new ecommerce operators such as Yoox Net-a-Porter.
Saks rival Barneys New York, once vital for young and emerging fashion designers wanting to establish themselves, filed for bankruptcy protection this August. Its chief rival, Neiman Marcus, earlier this year restructured its debts to avert a similar fate.
Shares in Toronto-listed HBC had rallied 6.5 per cent on Monday afternoon to just over $10 but remained shy of the agreed price.