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Helena Foulkes, seen here on June 12, 2018, will still receive more than $10-million if privatization bid succeeds, but stock options would decline substantially in value.

Tijana Martin/The Canadian Press

Hudson’s Bay Co. chief executive officer Helena Foulkes’ pay package will get seriously dented if executive chairman Richard Baker succeeds in his $1.1-billion privatization effort.

Under the terms of Mr. Baker’s takeover bid, Ms. Foulkes, who joined the company in February, 2018, would lose performance-stock awards that were once valued at more than $9-million, a new bid circular shows. Her stock options, which the company valued at $1.6-million when they were granted, would get cashed out for just $81,000.

She will, however, receive cash for more than $10-million worth of restricted-share awards, which were designed to pay out regardless of performance far as long as she stayed as CEO.

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HBC released a shareholder proxy circular Friday outlining the details of the Baker group’s offer. It shows that TD Securities, which advised the HBC’s special committee evaluating the deal, calculated that the range of fair market values for HBC stock was from $10 to $12.25 apiece. The Baker group, however, offered $10.30 a share, more than 15 per cent below the high estimate of the value range. Since it was within the range, the committee recommended shareholders accept the deal.

The retailer, which operates its namesake brand and Saks Fifth Avenue among others, has been battling with dissident shareholders who oppose Mr. Baker’s bid because they believe it undervalues HBC’s real estate in New York and Vancouver.

HBC lured Ms. Foulkes from CVS Health Corp.’s pharmacy division in 2018 to lead its turnaround efforts with a compensation package valued at $29.4-million, an amount that made her one of Canada’s best-paid CEOs of 2018. Roughly $21-million of that was in stock that would pay out as she stayed to execute her plan and boost HBC’s share price. Mr. Baker’s take-private offer, however, values the company at little more than where the shares traded as Ms. Foulkes took the reins.

In the bid circular, HBC said “certain executives” are expected to get new awards once the company is private, away from the glare of the public markets, but did not reveal which executives would receive the awards.

The company referred questions to Sard Verbinnen & Co., a communications firm representing the special committee, which declined to comment.

A shareholder vote on the privatization bid is set for Dec. 17. Although Mr. Baker and his allies control 57 per cent of the stock, the deal requires support from the majority of the remaining shares outstanding.

Catalyst Capital Group Inc., which holds 17.5 per cent of HBC stock, has said that it can block the privatization and claims that shareholders owning 28.24 per cent of the retailer will oppose the deal.

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HBC’s 217-page circular attempts to show how the value of the company’s real estate in New York has declined. It provides three fairness opinions, including one from TD that relies on real estate valuations from commercial property companies CBRE and Cushman & Wakefield.

The most glaring decline in value is at HBC’s Saks Fifth Avenue property in Manhattan – prime real estate close to Central Park that investors believe could be redeveloped into more lucrative property such as condos and office space.

The Saks building has an equity value of $429-million, according to the new valuations, which is an 85-per-cent decline from HBC’s valuations two years ago when the company said the property had an equity value of $2.9-billion.

Mark Rose, CEO of commercial real estate firm Avison Young, called a decline that rapid “ridiculously rare.” Mr. Rose was speaking generally about the real estate industry and was not addressing HBC or any of its specific properties. His firm was not involved in the HBC deal.

“You are talking about one of two things: It has lost virtually all of its tenants or you found out maybe there was hazardous waste or environmental problems,” he said in an interview. “That is when you see something of that magnitude. Otherwise, that is really hard to come by."

According to the circular, real estate appraisers determined that converting Saks into luxury condos was “not financially feasible” because of the weakness of the Manhattan condo market and the potential location of the residential units on the lower floors. Also, the building is considered a landmark property and cannot be altered without regulatory approval.

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The circular also shows the Baker group was not open to an outside bid or alternatives to the privatization plan and refused to go higher than its offer of $10.30. At one point, the special committee considered a share buyback or extraordinary dividend with the net proceeds from the sale of HBC’s European assets, instead of the privatization bid.

Editor’s note: This story has been updated to reflect that Mr. Rose was speaking generally about the real estate industry and was not addressing HBC or any of its specific properties.
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