There’s a competing offer on the table for the Hudson’s Bay Co.
The Catalyst Capital Group Inc. has offered to buy HBC, the Toronto-based parent company of the Saks Fifth Avenue, Saks Off 5th and Hudson’s Bay chains, for $11 a share. It’s an attempt to outbid the $10.30 offer by HBC’s executive chairman Richard Baker and his group of major shareholders to take the company private.
Figures are expressed in Canadian dollars.
Baker’s offer has already been accepted by the special committee of the board of HBC, and a shareholder vote has been scheduled for Dec. 17.
Catalyst, a Canadian private equity investment firm specializing in distressed and undervalued Canadian situations, wants shareholders to vote against the Baker bid. The firm has also filed a complaint with the Ontario Securities Commission against Baker and his group, claiming that their actions are “contrary to the public interest, on the basis of misrepresentations in their circular (issued earlier this month) and other potential securities law violations and a deeply flawed process by which the company accepted Baker group’s offer.”
Catalyst is also informing shareholders that if they voted by proxy already, they can still change their vote. Only their latest proxy card counts, Catalyst noted.
Catalyst said it exercises control or direction over 32.2 million HBC shares, representing 17.48 percent of the issued and outstanding common shares. Catalyst said its offer is a “bona fide, independently financed all-cash offer that can be completed in a timely manner by February 2020.”
Baker and his group of key HBC shareholders collectively own 57 percent of the company and have offered to purchase the remaining 43 percent of the shares for $10.30 per share in cash.
Baker’s group, referred to as the “continuing shareholders,” issued a statement contending: “Catalyst’s offer is in fact a highly conditional, non-binding and non-executable proposal that is not supported by fully committed financing and is intended to mislead HBC shareholders. We are confident that HBC shareholders recognize that our all-cash, full financed premium offer of $10.30 per share provides them with immediate and certain value in a highly uncertain retail environment. Our offer has received the unanimous recommendation of the HBC special committee and board of directors and will be put to a shareholder vote at HBC’s special meeting on Dec. 17, 2019.”
Recently, HBC had its 79-owned properties, including the Saks flagship, HBC’s most valuable property, appraised to help evaluate the company in advance of the vote on taking the company private. The Saks Fifth Avenue flagship was appraised at $1.6 billion U.S., representing a huge drop from an appraisal in 2014 at $3.7 billion. At the time, HBC boasted that the value of the flagship far exceeded the $2.9 billion that HBC paid for all of Saks Fifth Avenue in 2013.
The lower valuation of the Saks flagship was attributed to a declining performance by the store and the retail landscape overall, particularly the department store channel, as well as the rise of e-commerce and the drop in market rents on Fifth Avenue. The flagship is in the final stages of a dramatic $276 million multiyear modernization. Initially, the cost of the transformation was put at $250 million. CBRE appraised Saks flagship, and Cushman & Wakefield did the other 78 properties.
Lower real estate appraisals lessen the overall value of the company. In HBC’s case, the real estate represents the lion’s share of the stock price, or 8.75 a share in Canadian dollars, according to the appraisal.
With today’s announcement from Catalyst, HBC’s stock rose 13 percent, or $1.16, to $9.99 on the Toronto Stock Exchange.
Catalyst said it’s “deeply concerned” with the financial terms and structure of the Baker group bid because it uses assets of the company belonging to all shareholders and that it undervalues the company.
Gabriel de Alba, managing director and partner of Catalyst, said, “We are pleased to offer all HBC shareholders a superior offer to the flawed and coercive transaction constructed by Richard Baker. The Catalyst offer is independently financed, superior in both value and treatment of shareholders and can be completed in a timely manner.”
“It has been a revelation to us how far Richard Baker will go to acquire this iconic company for as cheaply as possible, without putting up a penny of his own money. Last year insiders disclosed a value of $28 per share for the real estate and now they want us to believe that over $2.5 billion of value has conveniently and suddenly disappeared. HBC has not protected its minority shareholders and has allowed its large and sophisticated shareholders, apparently in breach of a standstill and duty of confidence, to create a control position with the benefit of insider information.”
On June 10, 2019, Baker and his group announced a $9.45-per-share offer and subsequently upped the offer to $10.30. The deal was conditioned on using the proceeds from the sale of HBC’s retail and real estate operations in Germany, which Catalyst maintains was unfair to minority shareholders and benefits the Baker Group only.
“It would appear unlikely that the Baker group could have announced the offer so quickly, which was structured to be contingent upon completion of the Signa transaction, without access to material confidential information. This raises fundamental issues of fairness and is deeply troubling.”
Jonathan Litt, founder and chief information officer of Land & Buildings, an activist shareholder, said, “We continue to believe that the offer from the Richard Baker group woefully undervalues Hudson’s Bay and its real estate. We are encouraged by the news that Catalyst will proceed with the superior $1.5 billion offer for the company and Land & Buildings is interested in financially participating in this transaction with Catalyst should it move forward.”
BTIG LLC is serving as financial adviser to Catalyst and McMillan LLP as Canadian counsel, and Brown Rudnick LLP and Latham & Watkins LLP as U.S. counsel. Gagnier Communications is serving as strategic communications counsel. Laurel Hill Advisory Group is serving as shareholder communications adviser and information agent.