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Flagship Sale, Galeria Kaufhof Offer Spark Rift Between HBC, Land & Buildings

Activist investor Land & Buildings is crying foul over Hudson’s Bay Company’s plan to sell its Lord & Taylor flagship in New York, claiming the terms of the deal undermine shareholders’ best interests.

Jonathan Litt, founder and CIO of Land & Buildings, which owns 4.3% of HBC stock, issued a public letter to HBC shareholders yesterday claiming the company’s deal to sell the flagship to WeWork and Rhone Capital would give the latter entity controlling interest via the issuance of convertible preferred security at below market rate.

Litt said he wants to know “why Hudson’s Bay felt compelled to raise capital through a dilutive share issuance when there appear to be superior sources of capital available,” referring to HBC’s offer from Signa Holding for its German business and select real estate.

Litt contends that the transaction should have been put to a vote by the minority shareholders. As a result, the investor said he was bringing his concerns before the Toronto Stock Exchange and the Ontario Securities Commission.

[Read more about HBC’s real estate deal: Lord & Taylor to Become WeWork Headquarters in NYC Flagship Sale]

In response, HBC today released a statement requesting “Land & Buildings to stop misleading our shareholders.”

“Land & Buildings has made allegations regarding the Rhone investment that are incorrect on their face. The Company has not sold a controlling interest to Rhone,” the release said. “The other terms of Rhone’s equity investment are customary for transactions of this nature, and were, contrary to Land & Buildings’ assertion, negotiated at arm’s length.”

Further, HBC said it is in compliance of all regulatory requirements and that the deal did not “disenfranchise” any shareholders. In fact, the company stated that “more than a majority of the Company’s current shareholders have already provided their informed consent to the transactions.”

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HBC said the transaction was fully vetted by its board and its legal and financial advisors, all of whom unanimously approved it.

Regarding the German business, HBC acknowledged receipt of a “conditional, non-binding, preliminary proposal,” as it did in a separate release Wednesday, but questioned Litt’s assertion that the deal is “fully financed,” saying it has seen no evidence that that is the case.

Land & Buildings has been vocal about its belief that HBC would better serve its shareholders by redeveloping some property or selling some of it’s business units.

Hudson’s Bay announced Monday that, through its joint venture with RioCan Real Estate Investment Trust, it is exploring the possible sale of its Hudson’s Bay Vancouver flagship.

The retail group, which operates Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue, Gilt and Galeria Kaufhof, is in the midst of a transformation as it attempts to pay down debt and strengthen its omnichannel operations to better cope with the issues facing apparel retail and changing consumer demands.