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Activist Investor Says $1.3 Billion Take-Private Offer Undervalues HBC Real Estate

A day after Hudson’s Bay Co. said it closed on the sale of its European real estate and retail joint ventures, investor Paradise Developments fired off a letter to the company opposing HBC chairman’s proposed takeover offer.

Paradise sent the letter to HBC’s Special Committee, which is reviewing the non-binding proposal from chairman Richard Baker to take the company private in a deal valued at $1.3 billion. Much like Catalyst Capital Group and activist shareholder Jonathan Litt, Paradise is essentially calling the $7.12-a-share proposal “inadequate.”

Paradise, a long-term shareholder of HBC with 1.2 million common shares, sought to ensure that the Special Committee protects the interests of minority investors. Baker and his affiliated group collectively hold 57 percent of the outstanding common shares of HBC. The company also asked the Special Committee to have its advisors–J.P. Morgan Securities as financial advisor and Centerview Partners as special advisor–to either prepare or obtain an appraisal of HBC’s real estate holdings.

Paradise said, “As you no doubt are aware, HBC’s owned real estate is incredibly valuable relative to its current market cap and enterprise value.” The letter went on to note that the insider offer “doesn’t come close to cover the value of HBC’s real estate and any of its upside potential, which may be realized through development, joint ventures and spin-off scenarios.”

Minority shareholders connected to buyout offers almost always seek a better deal than the one placed on the table. In this case Paradise said once a valuation is completed, taking into account incremental value realized through appropriate corporate actions, it’s reasonable to conclucde that HBC is worth a “significant premium” to the insider price.

HBC said on Tuesday that the sale of its European interests to Signa Reetail will allow it to repay a term loan.

An HBC spokesperson declined to comment.