NEW YORK — An American industrialist still hasn’t completed plans for his investment in Hudson’s Bay Co., but he is moving closer to what may be a possible takeover play for the Canadian retailer.
As reported by WWD in December, Jerry Zucker, chairman of Nova Scotia-based Maple Leaf Heritage Investments, has gradually increased his stock holdings in Hudson’s Bay, or HBC. As of April 21, that stake now represents 18.1 percent of HBC’s outstanding shares.
With a stake that high, there are continuing questions about what Zucker might do next. Does he just hold on to what he’s got? Or will he buy more shares? If so, then a takeover maneuver appears to be the more likely scenario.
Anyone owning more than a 20 percent stake is required to make an offer to all other shareholders, according to a story that ran in The New York Times last Wednesday. The story attributed the requirement to an HBC poison pill, an anti-takeover defense.
Not so fast, according to Zucker’s representative in the U.S., who pointed out that no decision has been made about the HBC investment. But if one were to be considered, the poison pill would be merely a minor obstacle.
Robert Johnston, vice president for strategic planning at the InterTech Group Inc., Zucker’s firm in the U.S. based in North Charleston, S.C., noted that under Canadian securities regulations one “cannot acquire more than a 20 percent [stake] through the open market transaction without tendering for all shares.”
He also noted an exemption for when such deals are accomplished through privately negotiated transactions. And while poison pills usually make life difficult for the potential raider, Johnston doesn’t see them as an effective blocking mechanism in Canada.
“In the case of HBC, if triggered, it would dilute [the value held by] existing shareholders. But Canadian poison pills tend not to hold up in court. If we were to launch a tender offer, the [HBC] poison pill would be a stalling tactic, but it would be vitiated under Canadian law if the [court considers the] bid fair to all shareholders,” he said.
Of course, Johnston repeated, Zucker hasn’t decided what he wants to do. “We are considering all options. We may buy more stock, sell or tender for all outstanding shares. We are patient investors….There are no deadlines, and we continue to watch the situation,” he emphasized.
Johnston said the company is not planning any major announcement at HBC’s annual meeting on May 28.
“We’re not going to upstage the board,” he said.
Johnston confirmed that management at the two firms have had ongoing conversations, describing them as “cordial.” He said that Zucker’s preference is for a “friendly transaction. One thing we try to get across is that we are very supportive of the company and supportive of the management team. We like their strategy, and we are good corporate partners in our other [strategic alliances.] We are not a Yankee raider.”
Insiders at HBC might not necessarily view Zucker as their friend. A source close to the retailer said that the chain, which celebrated its 334th birthday on May 2, very much wants to remain independent, with existing management in control of the retailer’s own destiny. The source also said that HBC management is likely to put up a fight should there be a tender offer in the works.
One source familiar with HBC’s operations said that a special committee was set up to review its options with regard to the Zucker share acquisitions, and a contact at Zucker’s operations said that the committee was likely formed sometime after April 21 when Zucker’s holdings hit the 18.1 percent mark.
Rob Moore, vice president for communications at HBC, said, “A possible takeover is one of four or five options Zucker outlined to us since December.”
He noted that the company is reviewing how best to preserve shareholder interests. He added that the final decision regarding whether a takeover is approved, should that be the case, is one for HBC shareholders. As for the special committee, Moore declined comment about “that level of detailing in terms of what the board has planned.”
Moore did say that the retailer and management are “taking into account what our obligations should be to be prepared for any eventuality.”
According to Johnston, analysts have been far too focused on competition with Wal-Mart and same-store sales growth, and he lamented how they are missing the big picture where HBC is concerned.
“This company has cash flow of between $350 million to $450 million [Canadian] on an EBITDA [earnings before interest, taxes, depreciation and appreciation] basis. Hudson’s Bay is focused on profitability and the bottom line, and is not out to impress anybody,” Johnston said. In U.S. currency this equates to $255 million to $320 million at current exchange rates.
He added that another impressive move has been how HBC is differentiating itself from other Canadian retailers.
“The refurbished Zeller’s stores in the new format are like what Target is in the U.S. Zeller’s with its new stores is bringing in new product, and is more innovative. We have visited the new Zeller’s stores and we have been very impressed,” Johnston said.