Hudson's Bay, HBC, Richard Baker

Too cheap?

Hudson’s Bay Co. is taking heat again from activist shareholder Jonathan Litt of Land & Buildings Investment Management LLC. This time, it’s over the bid by Richard Baker, executive chairman and governor of HBC, along with other shareholders representing 57 percent of HBC’s common shares, to take the retailer private at 9.45 Canadian dollars per share.

The deal values HBC’s stock at 1.7 billion Canadian dollars, or $1.28 billion. Others in the group include Rhône Capital LLC, WeWork Property Advisors, Hanover Investments (Luxembourg) S.A. and Abrams Capital Management LP.

But Litt, founder and chief investment officer of Land & Buildings, on Tuesday sent a letter to the special committee at HBC, which is evaluating Baker’s offer, complaining that the 9.45 Canadian dollar offer greatly undervalues the company and is urging the offer to be raised to 18 Canadian dollars a share. Litt called Baker’s offer “woefully inadequate.” HBC stock closed at 10.02 Canadian dollars on Tuesday.

While Baker has stakeholders representing a majority of the shares on board with his bid, he still needs the approval of stakeholders representing a majority of the remaining 43 percent of the shares for the deal to go through.

Land & Buildings declined to cite its ownership stake in HBC, other than saying it’s “significant.” Some reports place it at around 3 percent.

In the past, Litt has urged HBC to act faster on monetizing real estate. He’s also questioned whether HBC has the right board and leadership in place, and has complained that HBC’s stock price undervalues the company and its assets.

Land & Buildings specializes in managing publicly traded real estate and real estate-related securities. It has a “proactive, engagement-focused approach and research-driven strategy, leveraging off our investment professionals’ deep experience, research expertise and industry relationships.”

Baker and his shareholder group plan to fund the go-private deal with some of the proceeds from asset sales. Litt believes if more of the asset sale proceeds were used, the share price on the proposed deal could be raised.

Litt is also urging HBC to hire an independent investment bank to consider the company’s value and strategic alternatives that could attract other potential buyers.

HBC has already sold off plenty of assets and is in the process of selling more. Up for sale: the entire Lord & Taylor chain in the U.S. and the Hudson’s Bay and Galeria Inno stores in The Netherlands. There’s also a “fleet review” of Saks Off 5th’s 133 stores under way including closing up to 20 Off 5th locations in the U.S. The fate of the Off 5th off-price division is questionable given its recent disappointing performances.

The Lord & Taylor flagship property, on Fifth Avenue between 38th and 39th Streets, was this year sold for $850 million to WeWork. All of L&T’s real estate and retail operations were purchased by HBC for $1.2 billion in 2006.

In other maneuvers, HBC’s Home Outfitters chain in Canada is closing, HBC sold the Gilt flash-sale web site to Rue La La and a minority stake was sold to Rhône Capital.

Also, HBC has a deal to sell its remaining stake in its German real estate venture to partner Signa for 1.5 billion Canadian dollars, or 1 billion euros, and divesting its remaining stake in Kaufhof’s retail operations to Signa, which takes full ownership. In exchange, HBC will take full control of its stores in The Netherlands, where Signa has been a partner. The Germany deal is expected to close in the second half of this year. Baker’s plan to take HBC private is conditioned on completely the Germany deal.

In 2014, Baker had an independent appraiser assess the Saks Fifth Avenue flagship, on Fifth Avenue between 49th and 50th Streets, at $3.7 billion, more than the $2.9 billion HBC paid to purchase Saks’ entire business the year before. In addition, Baker has formed ventures with real estate firms to further underscore the value of HBC’s real estate.