HBC rekindles plan for public offering

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Hudson's Bay Co. is reviving plans to go public, possibly in the next few months, as it faces pressure to invest more in its stores before discount retailer Target Corp. comes to Canada.

Plans to take a portion of the venerable Canadian retailer public have been revived after the company shelved the mulling of an initial public offering last October, said sources close to the company and on Bay Street. But bankers and executives are seeking the right time to attract investors in an otherwise shaky market for new offerings of shares.

One strategy being considered within HBC, the parent company of the Bay, Home Outfitters and the upscale United States retail chain Lord & Taylor, is to seek an IPO in February or March, after what is hoped to be a strong holiday shopping season, which will bolster sales numbers.

But an IPO could be attempted this fall, if HBC executives believe the fall shopping season is strong, and the stores perform well during the back-to-school period. U.S. discounter Target plans to enter the Canadian market in March, 2013, prompting speculation that HBC would seek a public offering sooner than later.

"The clock is ticking, the other guys are coming. If they don't get their stores upgraded, they're going to watch the value of a future IPO [decrease]," said retail consultant Jim Danahy of CustomerLab.

"This is probably an interesting time to see if you can put a stake in the ground for value and generate some liquidity before all hell breaks loose with the U.S. invasion," Mr. Danahy said of the expansion of Target Corp. north of the border, as well as growing competition from other chains such as Wal-Mart. "They've got to defend themselves."

Reports in the U.S. surfaced on Tuesday that bankers are crunching numbers on taking a portion of HBC public as soon as next month. The Wall Street Journal reported the company has retained bankers to look at an IPO for HBC's Canadian stores as early as October or November. The deal would involve a 30 per cent stake in the company, the reports said.

A spokesperson for HBC would not comment.

The time frame and scenarios for an HBC public offering has been fluid for the past year, as the company looks for the right opportunity to spin off a minority stake in its business.

Richard Baker, the U.S. shopping centre tycoon and CEO of HBC, sought to sell a 20-per-cent stake of the company into the market in October 2011, but held off on the deal as the IPO market dried up. At the time, bankers suggested the strategy had been put off at least a year.

Since then, HBC has been working to revamp many of its stores in Canada, while also stepping up its offering to consumers in advance of the expansion by retailers such as Target Corp.

"The retail pie is not growing, rents are increasing," Mr. Danahy said. "Unless someone is investing heavily they are going to see their existing investments in Canada shrink."

He added that the Bay is doing a good job improving its assortment, supporting its brand, and upgrading some of its stores. But "they have not finished the job in the overwhelming majority of their 92 stores across Canada, all of which have to compete against shiny new Target stores and the strong likelihood that somebody takes over and upgrades Sears stores."

HBC has annual revenue of roughly $4-billion. The Canadian retail chain was purchased for $1.1-billion by Mr. Baker's NRDC Equity partners in 2008. In January, he folded NRDC's Lord & Taylor assets into HBC.

The business has EBITDA (earnings before interest, taxes, depreciation and appreciation), of roughly $450-million, an increase from about $105-million in 2008.

Mr. Baker struck a deal with Target that paved the retailer's entry into Canada, selling the rights to most of HBC's struggling Zeller's stores to the company for $1.8-billion. The money gave HBC capital to expand its own operations, including adding upscale retail properties such as Lord & Taylor.

It's not clear whether Lord & Taylor would be included in IPO.

There is a good argument for keeping them separate. "Mall-based sales per square foot are substantially higher in Canada than they are in the United States because of supply," Mr. Danahy said. "So they would probably get a lower return on their Lord & Taylor stores."

Target plans to enter the Canadian market in March, 2013, which has also prompted speculation that HBC would seek a public offering before the spring.