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As an increasing number of analysts suggest the go-private proposal is inadequate, some HBC minority shareholders are quietly pushing for a higher offer.

Nathan Denette/The Canadian Press

Some investors are betting that Richard Baker, executive chairman of Hudson’s Bay Co., will need to offer a higher price to take the retailer private.

Shares of Toronto-based HBC rose more than 6 per cent to close at $10.25 on the Toronto Stock Exchange on Monday, which is above the $9.45-a-share privatization proposal from Mr. Baker and his group of HBC majority shareholders – suggesting that investors expect a higher bid.

HBC’s stock was trading below the $9.45-a-share proposal in the days after Mr. Baker unveiled it on June 10, reflecting investors’ expectation then that they wouldn’t get a higher offer. But the tide turned on Friday when the stock climbed above the offer price.

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Two analysts on Friday had raised their stock price targets to above the $9.45-a-share proposal while another, Mark Petrie at CIBC World Markets, increased his target price on Monday to above the offer price.

The $9.45-a-share offer "undervalues the improving trajectory of [HBC’s] retail and underlying real estate” value, Mr. Petrie said, adding the stores’ property value would pick up as the retail performance improved. He raised his 12-to-18-month stock price target to $10.75 a share from $9.45 a share.

As an increasing number of analysts suggest the go-private proposal is inadequate, some 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 its coveted building in Manhattan that houses its flagship Saks Fifth Avenue store.

Last September, Helena Foulkes, chief executive of HBC, said the retailer’s real estate alone was worth $28 a share.

Oliver Chen, retail analyst at Cowen & Co. in New York, said he is encouraged by the “better than feared” first-quarter results that HBC reported last week. “HBC’s story may be coming together,” Mr. Chen said on Friday.

He raised his target price on HBC’s stock to $12 from $10, adding he views Mr. Baker’s privatization proposal as “modest.”

Brian Morrison, retail analyst at Toronto Dominion, increased his HBC target price to $10.50 from $9.50.

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Industry observers say that the value of HBC’s stores’ real estate is tied to the value of the stores’ performance, which has been weak over the past few years. But with signs of improvements at the retailer, which owns its namesake and Saks, the value of the real estate could climb, calling for a higher privatization offer, some analysts now say.

Meanwhile, the deal that Mr. Baker’s group struck last January to buy the 10-per-cent block of shares that is held by Ontario Teachers’ Pension Plan has yet to close. Under the transaction, Mr. Baker’s group is to buy back the Teachers’ shares at $9.45-a-piece, which essentially had set a value for a go-private deal. A spokeswoman for Teachers declined to comment on Friday about what was holding up the closing.

On June 10, when Mr. Baker announced his go-private proposal, HBC also disclosed it was selling to its Germany-based partner the half of its troubled European division that it still held for $1.5-billion.

Some minority shareholders argue that they should profit from HBC’s European sale as well as from the value of its real estate which would remain with the majority shareholders, according to a source familiar with some of the shareholders. The source was granted anonymity because the person was not authorized to speak publicly. The real estate includes the Saks store in Manhattan and properties of Lord & Taylor, which is also owned by HBC, although it has put that chain on the block.

A spokesman for HBC’s majority shareholders declined to comment. They include WeWork Property Advisors and Rhone Capital LLC.

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 assets – 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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