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Private Investor Increases Hudson’s Bay Stake as Retailer’s Fate Hangs in Balance

Catalyst Capital Group, hoping to have a say in the future of Hudson’s Bay Co., will add an additional 10.1 percent stake in HBC to its holdings following a successful tender offer to the company’s minority shareholders.

The Canadian financial investment firm received and accepted nearly 18.5 million shares tendered at a purchase price of 10.11 Canadian dollars ($7.70) for a total cost of 187 million Canadian dollars ($140.5 million). On Monday, Catalyst said it will complete the purchase within three days.

The shares represent a premium to the per-share offer of 9.45 Canadian dollars ($7.12) from a take-private group led by company chairman, Richard Baker. Baker made the offer, with a deal value of 1.74 billion Canadian dollars ($1.31 billion) on June 10. His group currently owns a 58 percent stake in HBC. The Canadian retailer’s board has since formed a Special Committee that’s reviewing the proposal.

Gabriel de Alba, Catalyst’s managing director and partner, said, “The 10.05 percent of HBC shares adds to our existing holdings and we look forward to working with HBC, the Special Committee of the Board and the company’s stakeholders to ensure that this iconic company and its substantial assets are positioned to unlock value and that any transaction or strategic alternative maximizes value for the benefit of all shareholders.”

Catalyst initially made a tender offer for up to 14.84 million shares on July 22, and then raised the offer for up to 18.8 million shares on Aug. 5.

Catalyst said it continues to support the Special Committee’s process, but also wants the Committee to reject the proposal because it disenfranchises the firm’s minority owners. The financial firm said it is “committed to working with the Special Committee and the HBC board to seek out every alternative that can maximize value for all shareholders, whether through a sale process, dividend distributions of the cash to be realized from the sale of the company’s key European assets or otherwise.”

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A spokeswoman for HBC declined comment.

The Special Committee last Thursday cautioned minority shareholders about the Catalyst offer, noting that it wasn’t a “true alternative to the privatization transaction” proposed by Baker’s group. The latter is for an acquisition of 100 percent of the common shares held by minority shareholders. The Committee is in the middle of reviewing Baker’s proposal and has undertaken a formal valuation of the company’s common shares. However, the Committee has also stated that, based on an initial analysis, it believes that Baker’s proposal is “inadequate.”

Should the Committee and Baker’s group reach an agreement on the take-private offer, completion of the deal would be subject to approval of a majority of the minority shareholders.

By holding a larger stake in HBC, Catalyst gains a bit more leverage through the voting of its shares. The question now is whether it would be enough to get Baker and his group to raise their per-share offer. There’s a chance that probably wouldn’t be known until the formal valuation of HBC’s shares is completed, although the Committee has already asked Baker’s group if it intends to make a revised proposal.

In the meantime, Catalyst is likely to get some help from activist investor Jonathan Litt of Land & Buildings. Litt also has said Baker’s offer undervalues the company, and he and Catalyst are both pushing for a higher offer. Both minority investors believe HBC has valuable assets that could be unlocked. Most of that value is centered on its real estate holdings. HBC operates the Hudson’s Bay and Saks Fifth Avenue nameplates. In February, it completed the sale of its Lord & Taylor flagship building on Fifth Avenue in Manhattan for $850 million to WeWork and Rhône Capital.

Both Catalyst and Litt initially picked up shares of HBC sold by the Ontario’s Teacher’s Pension Plan in June. It wasn’t immediately clear exactly what stake was acquired by each firm. One financial source said that information should be available shortly because Canadian securities law requires a filing 45 days after the end of the quarter. While the holdings at the end of the quarter–on June 30–would be known, it wouldn’t indicate what other purchases have been made of HBC shares since then. The exception, of course, is the 10.1 percent stake Catalyst will acquire through its tender offer, once completed.