Too much pay, not enough say: Why so many HBC investors are balking at Baker’s plan

Hudson’s Bay Co. has more than enough to deal with.

HBC is generating consistent losses in its retail operations and retreating from international acquisitions it made a little over half a decade ago. A $29.4-million pay package for chief executive officer Helena Foulkes is not sitting well at all with institutional investors.

To top it off, the 349-year-old company’s shareholders are weighing a take-private bid from executive chairman Richard Baker, at a price that is 44 per cent below the 2012 initial public offering price of $17 a share.

Clearly, HBC had some explaining to do at its annual meeting in Toronto this week. Instead, the retailer decided to bar journalists from the room.

It’s a rare move and it sends a poor message – that in times of turbulence, transparency must be minimized. There wasn’t even a webcast available for shareholders who couldn’t attend.

Such a decision tends to have the opposite of the intended effect, attracting more questions rather than fewer. Mr. Baker may well intend to take HBC private to avoid the madding crowd of public investors but as it stands it is still a public company, beholden to all its shareholders.

Mr. Baker’s career at HBC has been marked by extracting value from far-flung assets – much of it impressive. Now, he wants to make it about a big buy.

The bid, at $9.45 a share, has the support of holders of 57 per cent shares, including his own 5 per cent. But some in the minority are giving the proposal a rough ride and the chorus of opposition is growing. Land & Buildings Investment Management LLC founder Jonathan Litt has been a frequent thorn in Mr. Baker’s side and it’s no different this time. Mr. Litt calls the offer “woefully inadequate,” pointing out Ms. Foulkes herself had previously estimated the worth of the company’s real estate holdings at $28 a share.

The Stamford, Conn.-based investor has called on the special committee of the board examining the $1-billion cash bid to open the process up to a full search for “strategic alternatives,” including a sale.

On Thursday, Vancouver-based Rennie Capital Corp., which describes itself as a significant long-term shareholder, jumped in to call the proposed deal “obviously and incontestably grossly inadequate,” taking the tension up a notch.

It sent its own calculations to the special committee, saying the company’s real estate holdings and Hudson’s Bay and Saks Fifth Avenue banners have a fair-market value of $33 a share. That’s up for debate, of course, and the investor said it had not previously planned on selling its shares.

The tone gets tougher. It would be a “travesty of corporate governance” if the committee does not reject the bid, Matthew Rennie, the firm’s chief financial officer, wrote.

“The take-private proposal serves no one other than Richard Baker and the Baker Group and seeks to severely damage other loyal shareholders like ourselves, shareholders to whom you owe a duty of care.”

Still, despite the broad consensus that the company’s real estate assets are a rich vein of unearthed cash, it’s doubtful any bid would be in the neighbourhood that the angry shareholders suggest is possible.

Ms. Foulkes, a former president at U.S. drugstore giant CVS Health Corp.’s pharmacy division, has made several moves to put HBC back on solid ground. She has jettisoned European operations, agreeing to sell the remainder this month for $1.5-billion. She sold the company’s Lord & Taylor flagship building in Manhattan for $1.1-billion, and has put the rest of the chain up for sale. She is shutting the money-losing stores, including Home Outfitters.

But the retail landscape has been even more ruthless, due in large part to online competition, and the shares had slumped. They fell to as low as $6.37 on June 7 and have since risen above the bid price on the wager that a higher offer is in store.

Despite the corporate restructuring moves, the turnaround is anything but complete. Proxy advisory firm Glass Lewis & Co. gave HBC an F grade for compensation, saying it had been “deficient in linking executive pay to corporate performance.” At the annual meeting, large institutional shareholders, including Ontario Teachers’ Pension Plan Board, British Columbia Investment Management Corp. and California Public Employees Retirement System, either voted against or withheld votes for the company’s executive pay scheme in a non-binding resolution.

The company won the day on that count, but with 26.5 per cent voting against it, minority shareholders are sending a clear message that they aren’t happy, and that HBC remains very much a work in progress. Meanwhile, there are questions about whether Mr. Baker’s $9.45 bid rewards only those on the inside. Keeping the annual meeting a private affair does nothing to dispel that worry.