Hudson’s Bay executive chairman Richard Baker has agreed to boost his bid for iconic retailer Hudson’s Bay Co., winning the backing of dissenting shareholder Catalyst Capital Group. and likely ensuring the company will go private later this year.
The new offer of $11 per share in cash tops the previous, purportedly “best and final” offer of $10.30. In a late-night announcement Friday, Catalyst Capital Group Inc. said it will vote in favour of the new deal.
Hudson’s Bay shares closed at $9.88 a share Friday on the Toronto Stock Exchange, before the Catalyst agreement with Hudson’s Bay was announced.
The increase marks the second increase in the offer from Mr. Baker and a group of controlling shareholders, who own 57 per cent of the company. Mr. Baker first offered $9.45 in June, then boosted the offer to $10.30 in late October.
Catalyst objected, however, arguing it didn’t reflect full value for the retailer and its real estate assets.
HBC shares approached $30 in May 2015, but hit a low of $6.22 in May of 2019 as HBC suffered along with other traditional department-store companies in their ongoing struggles of the digital age.
Catalyst, led by Toronto financier Newton Glassman, engaged in a noisy public battle with HBC. Catalyst, with its 32.2 million shares, announced it had enough allies to block the deal and that it would be willing to take the company private itself at $11 per share. Catalyst purchased just under 18.5 million HBC shares at $10.11 in a tender offer that concluded in August.
Mr. Baker needed to win support for the deal from a majority of the minority shareholders, and Catalyst alone owns nearly one-third of them, making the vote tenuous. Another shareholder, New York hedge fund Ortelius Advisors LP, which said it owns 876,450 shares of HBC, filed a lawsuit in Ontario Superior Court to block the deal.
Catalyst took its case to the Ontario Securities Commission in December, arguing that HBC’s circular to shareholders describing the transaction had been incomplete and misleading. The OSC ordered HBC’s shareholder meeting postponed so shareholders could receive a new, expanded circular.
With the truce, formally enshrined in a “support agreement,” the nasty rhetoric between Catalyst and HBC has ceased. The cash offer, in which minority shares will be cancelled, allows the Baker group to proceed with Catalyst out of the picture.
The extra 70 cents per share will require the Baker group to pay an extra $70 million on its $1-billion offer, and values HBC at just over $2-billion, not including a class of preferred stock worth about $600 million.
The company said it intends to hold a special meeting of shareholders to approve the deal in February.
Catalyst managing director Gabriel de Alba said in Friday’s statement "given the desire by the continuing shareholders to take the company private through their consortium, we are pleased to support a transaction at $11 per share, which delivers significantly more value for all minority shareholders."
David Leith, chairman of HBC’s special committee of directors, said he “would like to commend Catalyst on their constructive approach to getting a transaction agreed which we believe is in the best interests of the company and the minority shareholders.”
Mr. Baker offered no statement Friday on the matter.
There are ways for each party to scrap the new deal. As part of the amended offer, HBC’s special committee has requested new opinions from its three financial advisors, TD Securities, J.P. Morgan and Centerview Partners LLC. TD Securities had determined the fair value of HBC shares as between $10 and $12.25.
HBC said Friday night that if TD Securities provides a new formal valuation range with a lower end that exceeds $11 per share, HBC is entitled to pull its $11-per-share offer.
Catalyst can revoke the support agreement, however, if the fairness opinion doesn’t say the lower end of the range is equal to or less than $11 per share. And if Catalyst ends the support agreement, the Baker group can pull its $11 offer.
Catalyst owns about 17.5 per cent of HBC. Mr. Baker, his brother, and their immediate families own about 6.9 per cent of the company. Other shareholders in Mr. Baker’s group include company directors and other insiders; Rhone Capital, which owns all of the preferred stock in HBC, convertible into 23.5 per cent of the company; The Abu Dhabi Investment Council Co PJSC – a sovereign investment fund, which owns 13.4 per cent; and Abrams Capital Management LP, which owns 9.4 per cent.
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