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Hudson’s Bay Shareholders Offer $1.31 Billion in Deal to Take Company Private

A group of Hudson’s Bay Co. shareholders, including executive chairman Richard A. Baker, on Monday offered to take the company private in an all-cash deal.

The offer is from Baker and affiliated investors, including Rhône Capital LLC, WeWork Property Advisors, Hanover Investments (Luxembourg) S.A. and Abrams Capital Management L.P. Collectively, they own 57 percent of the outstanding common shares of HBC. The per-share proposal they submitted is for 9.45 Canadian dollars ($7.12) a deal valued at 1.74 billion Canadian dollars ($1.31 billion).

The purchase price is the same as the one agreed to by the Ontario Teachers’ Pension Plan Board in January for the sale of its entire block of 10 percent of the outstanding common shares of HBC. The proposed per-share amount also represents a premium of 48 percent of HBC’s closing share price on the Toronto Stock Exchange Friday, as well as a premium of 39 percent of its 20-day average closing price.

“Our all-cash proposal would provide HBC’s public shareholders the ability to realize immediate and certain value for their shares at a substantial premium while transferring the risks and uncertainties facing HBC to the continuing shareholders,” Baker said of the take-private offer.

The group believes that improving HBC’s performance, he added, will require “significant time and patient long-term capital that is better suited in a private company context without the emphasis on short-term results and returns.”

HBC said on Monday that it has formed a special committee of independent directors to review the take-private bid. The company has hired Blake, Cassels & Graydon as legal counsel and J.P. Morgan Securities as financial advisor. The committee will also oversee the preparation of a formal valuation by an outside valuator in connection with its review.

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Separately, the terms of the proposed take-private deal are conditioned on the sale of HBC’s 50 percent interest in its European real estate joint venture, and the 49.99 percent interest in its related retail joint venture to Signet. The net cash proceeds would help fund the transaction, along with additional debt financing and continued shareholder equity from those making the offer. The take-private offer is also subject to customer closing conditions, including the approval of the “majority of the minority” shareholders.

HBC has already signed definitive agreements to sell its German interests for 1.5 billion Canadian dollars, and upon closing would completely exit those operations. A portion of the proceeds will be used to repay the company’s outstanding term loan of 436 million Canadian dollars. The deals are expected to close in fall 2019. Signa has made a deposit as consideration upon inking the purchase agreement.

While Signa will assume liabilities connected with the German operations, HBC will assume full ownership of the Netherlands retail business and release Signa from any further obligations upon closing. HBC said it has retained a financial advisor to explore options for the Netherlands operation. The Canadian firm also disclosed that the business “has not performed to expectations.” And while it explores options for the business, HBC said it expects to pursue cost-cutting measures, including shutting certain stores.

Helen Foulkes, HBC’s chief executive officer, said the transactions in connection with its German operations will help the company strengthen its balance sheet.

“Strategically, we will be able to fully focus our resources on HBC’s North American operations, including our best growth opportunities–Saks Fifth Avenue and Hudson’s Bay,” Foulkes said, adding that the transaction with Signa “unlocks the value of our real estate and demonstrates our resolve to creating a stronger, more capable HBC.”

The strength of HBC’s Saks Fifth Avenue business was evident in the company’s fourth quarter earnings results for the period ended Feb. 2. The net loss for continuing operations was $169.4 million of a 5.5 percent sales decline to $2.17 billion. What was important was that comparable sales at the luxury retailer was up 3.9 percent, giving the retail chain a two-year stacked comp of 7 percent and its seventh consecutive quarter of comp growth.

Separately, HBC is still exploring options for its Lord & Taylor business, which could include a sale or merger.