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Saks shares rise on report it hired Goldman to explore options (Mary Altaffer/AP)
Saks shares rise on report it hired Goldman to explore options (Mary Altaffer/AP)

HBC snaps up Saks for $2.9-billion, plans Canadian rollout Add to ...

Hudson’s Bay Co. has sealed a deal to buy Saks Inc., a move that would see the U.S. luxury department-store retailer being launched in Canada along with its Saks Off Fifth discount sister chain.

Richard Baker, the U.S. real-estate magnate who snapped up HBC in 2008,  sealed the deal early Monday. He plans to keep Saks running in its U.S. home base along with HBC’s Lord & Taylor, which operates mainly just in northeastern states, and roll out Saks in Canada.

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“They’re still working out some last-minute details,” a source familiar with the negotiations said late Sunday. “They still will keep the distinct businesses.”

HBC is paying $16 (U.S.) a share for Saks, making the purchase price $2.4-billion (U.S.). The deal also includes the assumption of debt, bringing the total to $2.9-billion.

“This exciting portfolio of three iconic brands creates one of North America’s premier fashion retailers,” said Mr. Baker, HBC’s chairman and chief executive, said in a release Monday.

“This acquisition will increase our growth potential both in the U.S. and Canada, generate significant efficiencies of scale, add to our powerful real estate portfolio and deliver substantial value to our shareholders.”

The deal, which comes after weeks of negotiations, caps Mr. Baker’s bid to fill his existing retail real-estate space with must-have fashions and alluring brands. He has raced to turn around the tired Lord & Taylor, which he bought in 2006, and HBC, selling most of its discounter Zellers leases for $1.8-billion (Can.) to U.S. Target Corp.

Now the savvy real-estate specialist turned retailer is betting that the upscale Saks with its prestigious Saks Fifth Avenue banner will help him gain more buying and distribution power, become a fashion destination to replace some of his Bay locations in Canada, and provide much-needed economies of scale in both countries.

Saks’ stock, which closed at $15.31 (U.S.) on Friday, has risen by nearly 45 per cent this year amid rumours about it being acquired.

Saks was hit hard during the recession, when high-end retailing suffered from sharp consumer spending cutbacks, and the New York-based chain has yet to fully recover. In its last fiscal year, it reported a profit of $63-million – down from a year earlier, on sales of $3.15-billion, which improved from the previous year.

In May, Saks hired investment banker Goldman Sachs to look into strategic options, including a possible sale. Mr. Baker was interested from the start, but the price was too rich, sources said last month.

Starwood Capital Group, owned by New York real-estate titan Barry Sternlicht who created W Hotels, submitted a bid for Saks, according to a report this month. It also said that a Middle Eastern sovereign wealth fund was interested in the chain.

The value of Saks real estate could be at least $1.5-billion, sources have said. The retailer owns roughly 66 per cent of its stores. One analyst has estimated that Saks’ flagship store in New York is worth $600-million.

Mr. Baker’s acquisition of Saks could mean that he would introduce the banner into Hudson’s Bay stores such as the one at Bloor and Yonge Streets in Toronto or as part of it large flagship stores across the country in a handful of locations, sources have said. He could convert other existing stores to the Saks Off Fifth discount chain and run the Saks e-commerce site in this country.

With upscale U.S. department-store retailer Nordstrom Inc. arriving in Canada next year, HBC could convert some nearby Bay stores to Saks to take on the newcomer, an industry insider suggested.

Retailers are vying for attractive store space, of which there is a dearth in Canada. Mr. Baker, on the other hand, has plenty of retail real estate in this country. Along with 90 Bay stores and 69 Home Outfitters outlets, it still hangs on to some Zellers stores that weren’t picked up by Target, Wal-Mart Canada or other chains.

Toronto-based HBC is in a stronger position than it’s been in for years, having enjoyed signs of a revival under the leadership of Bonnie Brooks, a department-store and fashion veteran whom Mr. Baker hired in 2008.

Last month, HBC announced that Ms. Brooks will become vice-chairman and another experienced HBC executive, Liz Rodbell, will replace her as president.

HBC already has Saks knowledge within its ranks. Mr. Baker has hired a number of Saks executives, including HBC chief operating officer Donald Watros and Marc Metrick, chief marketing officer.

Last year, Mr. Baker looked at teaming up with U.S. luxury rival Bloomingdale’s in a bid to feature its shops within Hudson’s Bay stores, but no deal was reached. Mr. Baker has also had talks with Nordstrom in the past, sources said.

In its first quarter, HBC reported that same-store sales at its Canadian stores rose 7.6 per cent at outlets open a year or more, while those sales dropped 1.4 per cent at its smaller U.S. Lord & Taylor division.

HBC’s loss narrowed to $21.2-million, or 18 cents a share, from $47-million or 45 cents in the year-earlier period. Sales rose 4.2 per cent to $884-million.

 

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