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The brewing shareholder battle comes as HBC’s stock trades above $9.45 a share, suggesting some investors believe Richard Baker’s group will need to offer a higher price.Fred Lum/The Globe and Mail

Leaders of Hudson’s Bay Co. are expected to face questions from shareholders at Wednesday’s annual meeting about a controversial offer to take the retailer private, as well as opposition from some major investors to a $29.4-million pay package for chief executive officer Helena Foulkes.

Pressure is building on Richard Baker, executive chairman of the Toronto-based retailer, to increase his go-private bid or put the entire company up for sale.

U.S. activist investor Land & Buildings Investment Management LLC, which last year owned an estimated 3 per cent of HBC’s shares, on Tuesday called the offer of $9.45 a share from Mr. Baker and a group of HBC majority shareholders to take the retailer private “woefully inadequate.”

Land & Buildings called on the company, which owns its namesake department-store chain and Saks Fifth Avenue and Lord & Taylor, to explore “strategic alternatives,” including a sale, and to hire an independent investment bank to evaluate HBC’s potentially lucrative real estate and retail banners.

The brewing shareholder battle comes as HBC’s stock trades above $9.45 a share, suggesting some investors believe Mr. Baker’s group will need to offer a higher price. At the same time, some big institutional investors, including Ontario Teachers’ Pension Plan, have come out against the $29.4-million pay package for Ms. Foulkes.

Teachers, which holds 10 per cent of HBC’s shares, said in a regulatory filing it is voting against the company’s compensation plan because of concerns the board of directors has again granted special awards.

The British Columbia Investment Management Corp. is also voting against the compensation, saying the package doesn’t align pay with performance. The California Public Employees’ Retirement System, a U.S. pension giant, is voting no, but has not given reasons.

HBC drew criticism last year when Teachers and other large investors opposed its $54.8-million compensation package for Mr. Baker amid the retailer’s weak performance and disappointing stock price. Shareholders ultimately approved the pay.

In its information circular for Wednesday’s annual meeting, HBC says a “significant portion” of Ms. Foulkes’s share-based compensation – the biggest chunk of her pay – is “at risk.” It essentially depends on whether HBC’s stock performs well and whether she stays long enough to collect.

The company says that to attract an executive of Ms. Foulkes’s calibre, it needed to award one-time payments and stock options, and because she was recruited from the United States, HBC said, where executives generally earn more money.

Regarding the privatization, Jonathan Litt, founder of Land & Buildings, said in a letter on Tuesday to HBC’s special committee reviewing the proposal that the offer should be raised to $18 a share, almost twice the current $9.45 bid.

He said Mr. Baker’s offer would be financed by the company’s planned sale of its remaining half-stake in its European division for $1.5-billion. Mr. Baker’s group could use the proceeds of that sale to buy out the minority shareholders at $18 a share, Mr. Litt said.

He said it is “highly unlikely” the required majority of the HBC minority shareholders will accept $9.45 a share.

Mr. Litt bases his argument on minority shareholders representing just 35 per cent of HBC’s outstanding shares, and a fight is developing over who should be part of that group.

Mr. Baker and Teachers cancelled a deal they made in January for Mr. Baker’s group to buy the pension plan’s 10-per-cent share block of HBC at the same price – $9.45 apiece – as the privatization offer. Mr. Baker’s group and Teachers said on Tuesday that they agreed to kill the deal.

Mr. Litt said the transaction should not be dropped. Cancelling it puts Teachers among the minority shareholders who vote on the privatization offer, potentially helping Mr. Baker win enough support to take HBC private.

The numbers become crucial in light of the majority-of-the-minority shareholder vote needed to approve the go-private transaction.

Meanwhile, the price of HBC’s stock has climbed above $9.45. It traded lower in the days after Mr. Baker unveiled the offer on June 10, reflecting investors’ expectation a higher offer was unlikely, but the tide turned on Friday.

At least three analysts had raised their stock price targets since late last week to above $9.45. They point to the prospect of improving financial results at HBC, which can boost the value of the real estate that houses many of its stores.

HBC shares closed at $10.02 on Tuesday, down 2 per cent from a day earlier.

Some other HBC minority shareholders are quietly pushing for a higher offer to reflect what they think is the steep value of HBC’s real estate, including the building in Manhattan that houses its flagship Saks Fifth Avenue store, said a source familiar with the shareholders. The source was granted anonymity because the person was not authorized to speak publicly.

Last September, Ms. Foulkes said the retailer’s real estate alone was worth $28 a share.

Mr. Litt and other minority shareholders argue that they should profit from HBC’s European sale as well as from the value of its real estate, which would otherwise remain with the majority shareholders if the company went private, according to the source.

Spokespeople for HBC’s majority shareholders and Teachers declined to comment on Tuesday.

Ms. Foulkes, a skilled retail leader who arrived at HBC in early 2018, has moved quickly to sell or close unprofitable assets and focus on HBC’s stronger North American divisions – Hudson’s Bay and Saks. She said last week she expects better results in the second half of 2019, but for now the company has “more work to do fixing the fundamentals and strengthening operations.”

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