Richard Baker, the chairman of Hudson’s Bay Company, hopes to succeed where others have largely failed in recent years by taking a retailer private—in this case a department store operator—even as the broader category continues to struggle.
The parent of luxury retailer Saks Fifth Avenue agreed to be taken private for 11 Canadian dollars ($8.48) per share in cash by a group of existing shareholders led by Baker, the company announced. Buyers include Rhône Capital, Hanover Investments and Abrams Capital Management. Hudson’s Bay said it intends to hold a special meeting of its shareholders in February to vote on the transaction.
In reaction to the news, the department store operator’s shares spiked about 9.6% to CA$10.83 ($8.35) as of midday Monday, giving the company a market cap of about CA$2 billion ($1.54 billion). Hudson’s Bay’s balance sheet as of Nov. 2 included nearly CA$1.1 billion ($850 million) of cash and cash equivalents, as well as a roughly CA$1.6 billion ($1.2 billion) mortgage on its Saks properties and borrowings of nearly CA$1.2 billion ($930 million) on its revolving credit facility, according to public filings.
The announcement brings to a conclusion months of wrangling between the buyers and minority shareholder Catalyst Group, which holds a nearly 17.5% stake (about 32.2 million common shares) and said it would vote in support of the deal. Note that the Baker-led group of continuing shareholders initially offered to take Hudson’s Bay private for CA$9.45 ($7.29) per share in June, but resistance from Catalyst, which pushed for a higher offer, prevented a deal from happening.
In connection with the agreement, a special committee of Hudson’s Bay board of directors requested that TD Securities provide an updated independent valuation and fairness opinion. The opinion will be included in an amended management circular to be mailed to shareholders in advance of the special meeting. If the lower end of TD Securities’ valuation range exceeds CA$11 per share, or the fairness opinion has not been received by Feb. 14, among other circumstances, both Hudson’s Bay and Catalyst have the right to terminate the agreement.
The continuing shareholders led by Baker own nearly 83.7 million common shares, or about 45% of the retailer’s outstanding common shares, and 100% of the preferred shares (about 50.9 million). Assuming conversion of the preferred shares into common shares, the continuing shareholders own about 140.8 million common shares, or 58% of the total.