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Hudson's Bay executive chairman Richard Baker and his group of controlling shareholders are studying what to do about their $1.1-billion offer for the retailer in the wake of an OSC ruling.Nathan Denette/The Canadian Press

Hudson’s Bay Co. shareholders cannot vote on a privatization offer from the retailer’s executive chairman – if he decides to proceed with it – until well into January, according to an order issued by the Ontario Securities Commission.

The OSC, after a hearing last week, ruled that HBC must file an amended takeover circular with the regulator five days before mailing it out to shareholders. A new meeting date would have to be set for at least 14 days after the mailing, according to an order issued late on Wednesday.

A reworked circular has to include numerous new details about how the retailer’s board dealt with the privatization proposal before and after it was announced last summer, the regulator said. HBC said this week that it intends to issue an amended version and set a new meeting date “as soon as practicable.”

After a pair of big blows to their effort, HBC executive chairman Richard Baker and his group of controlling shareholders are studying what to do about their $1.1-billion offer after the OSC ordered the shareholder meeting, which had been set for Dec. 17, to be postponed. According to reports, it appeared that minority shareholders were set to reject the $10.30-a-share offer regardless, based on proxy submissions.

The Baker group, which controls 57 per cent of HBC stock, could decide to raise its offer for the shares it does not already own or walk away from it, which would leave HBC remaining a publicly traded department store operator. A spokesman for the group declined to comment on the possibilities.

Minority shareholders, led by Catalyst Capital Group Inc., have criticized the bid as undervaluing HBC and its real estate portfolio. The OSC granted Catalyst a hearing last week, and the body agreed with many of its arguments about insufficient disclosure by the company. The Toronto-based private equity fund has a 17.5-per-cent stake in HBC, and had proposed its own $11-a-share bid.

Now, the Baker group and minority shareholders look to be in a standoff, as either side has the ability to block the other. It is not clear what either group’s next move might be, but a stalemate serves no one, said Brian Madden, portfolio manager at Goodreid Investment Counsel. The rational move for Mr. Baker and Catalyst would be to hash out what might be agreeable to both sides, he said.

“[There are] big egos and reputational capital at stake on both sides, too, I suspect,” Mr. Madden said. “But unless egos get pushed aside, it’s business as usual, which probably means the shares go back to $7-ish.”

HBC sank 2.3 per cent to close at $8.36 on the Toronto Stock Exchange on Thursday, its lowest since Mr. Baker disclosed his intent to privatize the owner of the Hudson’s Bay and Saks Fifth Avenue chains in early June.

In its ruling, the OSC said that if HBC wants to proceed with a shareholder vote, it must add several pieces of information to the proxy circular, such as more disclosure about valuations conducted for the company’s flagship Saks store in Manhattan and whether they included potential worth based on the highest and best uses of the site.

The regulator said HBC must add analysis by independent HBC director David Leith on his decision to share confidential information with Mr. Baker in late March as the executive chairman explored potential privatization options behind the scenes. HBC announced on June 10 that Mr. Baker was considering a bid. The circular must also provide details about why the board did not form a special committee of directors to deal with potential conflicts of interest until June 9.

Also, the circular must explain why the board granted a waiver to a standstill agreement that had prevented Fabric Luxembourg Holdings, which is part of Mr. Baker’s bidding group, from acquiring more than 45 per cent of HBC shares. That waiver came to light in an Institutional Shareholder Services assessment of the offer early this month.

Among other additions, the company has to provide its analysis of using money from its sale of European operations to fund the bid.

It must also explain how it came to define what constitutes a superior proposal to Mr. Baker’s. Indeed, the special committee rejected Catalyst’s proposal, saying it could not be consummated because the Baker group had no intention of selling.

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