NEW YORK — Hudson’s Bay Co., parent of Lord & Taylor and The Bay in Canada, is moving closer to going public.
This story first appeared in the July 29, 2011 issue of WWD. Subscribe Today.
According to sources, Hudson’s Bay is targeting an initial public offering on the Toronto Stock Exchange for the end of October, when it could issue around 20 percent of the company. A road show would happen 30 days prior to the listing and last about a week. However, the timing of an IPO is subject to market conditions.
This fall is optimum timing. Retail stocks in the U.S. are near all-time highs, up 33 percent in the past year, shining a light on the sector, though shares of two public Canadian retailers, Sears Canada Inc. and Hart Stores Inc. have fallen 40 and 20 percent, respectively, in the past 12 months.
In addition, there is a $900 million payment due Hudson’s Bay from Target Corp. in September. It’s the second and final payment from Target in the $1.84 billion megadeal under which the discounter will buy up to 220 Zellers leases from Hudson’s Bay, enabling Target to enter Canada and open over 100 stores across the country. Target is also selling off many of the leases it purchased but doesn’t want, including about 40 to Wal-Mart Stores Inc. The deal bolsters an IPO since it will help Hudson’s Bay pay down debt from previous acquisitions, improve its retail operations and elevate its appeal to investors.
“This is the first shot to go public,” said a source close to Hudson’s Bay. “If the financial markets collapse, there’s no need to go public. Hudson’s doesn’t need the money. There’s no rush.”
Also fueling the decision to go public is the improving performance of the 92-unit The Bay department store chain in Canada, and 48-unit Lord & Taylor chain in the U.S. following significant remerchandisings and management switches. Among the changes, two new chief executive officers, Bonnie Brooks at The Bay and Brendan Hoffman at L&T, were installed in 2008.
The $8 billion Hudson’s Bay, based in Toronto, also operates the 160-unit Fields discount chain, the 69-unit Home Outfitters, as well as Zellers, all in Canada. With Target taking over most of its leases, Zellers is being phased out. The locations are primarily owned by developers and real estate investment trusts.
Hudson’s Bay Co. was purchased in 2008 for $1.1 billion by NRDC Equity Partners which was later renamed Hudson’s Bay Trading Co. Lord & Taylor was purchased by Hudson’s Bay for $1 billion in 2006.
Under the IPO, Hudson’s Bay Co. would be the entity going public. Though it’s possible a bidder emerges for Hudson’s Bay, a public offering is the desired path. Richard Baker, chairman of Hudson’s Bay Co. and governor of its holding company, Hudson’s Bay Trading Co., is said to have little interest in selling off the company entirely to private equity, or leaving the company, and continues to see opportunities to pump up his retail operations and maximize the real estate.
A listing on the Toronto Stock Exchange seems appropriate considering the venerable status of Hudson’s Bay, Canada’s oldest company. It was founded in 1670 as a fur trading firm.
There is also the view that retail companies can be better valued in Canada than in the U.S. The Toronto Stock Exchange is weighted in mineral and natural resource listings so for investors and financial institutions, Hudson’s Bay represents an opportunity to diversify portfolios.
“It’s appropriate that the Canadian people have an opportunity to own such an iconic company,” said one source, who also noted that Hudson’s Bay will consider a secondary offering in the U.S.
Baker declined to comment on the IPO.
Under its new ownership, The Bay, a lumbering, over-spaced department store, has shown some agility. It recently underwent a massive editing process, dropping some 800 of its 1,200 brands, introducing 150-plus others with a more modern and less moderate appeal, and shifting emphasis to higher productivity categories. The Bay has a deal to develop Topshop boutiques inside its stores starting this fall, and a couple of years ago, its designer floor, called The Room, was relaunched at the Toronto flagship. Yet there is still work to be done. The Bay has 15.5 million square feet of space and seven flagships each with between 300,000 and 700,000 square feet.
According to reports out of Canada, Hudson’s Bay Co. generated a pretax profit of about $450 million last year.
Lord & Taylor has also made some major changes since being acquired by Hudson’s Bay, including a $25 million makeover of the Fifth Avenue flagship. Aside from launching its first two outlets last year, the first opening of a new Lord & Taylor branch in 10 years will occur in Yonkers, N.Y., in 2012, at the Ridge Hill mixed-use center. Baker has previously said that other new Lord & Taylor units could open. The retailer is also expected to begin testing two freestanding home stores, in Paramus and Shrewsbury, N.J.
Work is also being done on the Fields discount chain in Canada, but there has been some speculation out of Canada that this too could be sold off.