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opinion

Private equity fund Catalyst Capital is attempting to portray itself as both a potential buyer of Hudson’s Bay Co. and a champion of shareholder rights in the battle for control of the department-store chain. That’s pretty far from reality.

Catalyst, controlled by Toronto-based financier Newton Glassman, is attempting to block a $1.1-billion offer for the 300-store chain from a group led by HBC executive chairman Richard Baker. The notoriously litigious PE fund wants to be seen as on the side of the angels, by purporting to offer more money for the chain and asking for support from market regulators.

Mr. Baker’s consortium, which includes several large PE funds, already owns 57 per cent of HBC and is offering to buy the rest of the chain’s shares for $10.30 each. Catalyst controls about 17 per cent of HBC and announced last week that it was prepared to bid $11 a share. On Tuesday, Mr. Baker’s group dismissed its rival’s takeover by saying in a press release: "The Catalyst announcement is an illusory offer, intended to mislead minority shareholders [and] manipulate the market.”

In the tit-for-tat that is coming to characterize this battle, Catalyst lawyer Paul Davis at McMillan LLP said in an e-mail: “Catalyst believes that these comments lack any basis in fact and are consistent with other misleading disclosure by the Baker group meant to misinform and frighten minority shareholders.”

Yet Catalyst’s own disclosure backs up Mr. Baker’s claim that the PE fund’s bid is a few bricks shy of a load. The fund manager’s $11-a-share offer consists largely of borrowed money, including $600-million of new debt. In last week’s press release, Catalyst said it received “two independent, highly confident letters from large financial institutions” willing to provide $600-million in loans. The two potential lenders are not named. And in finance circles, being “highly confident” about making a loan falls short of actually committing capital.

On Tuesday, Mr. Baker’s group said it complained to the Ontario Securities Commission over “Catalyst’s misleading disclosure regarding, among other things, the adequacy of their publicly stated financing agreements (which have not been committed by any means).”

Even if the PE fund can wrangle up to $1-billion in new loans to pay for HBC, extra debt that would end up on the chain’s balance sheet, Mr. Baker’s group said: “Catalyst’s reckless financing plans would swiftly add [HBC] to the long list of retailers that have been forced to close their doors, shed jobs and impact pensioners.”

The Baker group, no strangers to loading up on debt, said: “The amount of pro forma leverage is unrealistic, and much higher than the company, or any department-store retailer, can achieve or bear.”

To date, Catalyst’s press releases on HBC have devoted a great deal of space to criticism of Mr. Baker’s group, but been light on details about their own offer. In responding to these attacks on Tuesday, Mr. Baker’s group said: “Catalyst has a track record of failing to execute on its promises and of engaging in conduct that is viewed critically by many participants in the capital markets.”

At Mr. Glassman’s firm, that track record includes muffed bids for companies such as cellphone operator Wind Mobile and a series of lawsuits over investments. In past letters to its backers, which include pension plans and wealthy individuals, Catalyst pegged the value of potential positive outcomes from these court proceedings at tens of millions of dollars. That track record also includes one court proceeding that saw Catalyst involved in a failed sting operation against a retired Ontario judge conducted by Black Cube, an Israeli spy outfit founded by former Mossad agents.

Catalyst’s takeover plan at HBC was dead on arrival, as Mr. Baker’s consortium controls the chain and consistently made it clear they aren’t selling their stake. In trying to assume the role of white knight, Catalyst is likely targeting one of three goals.

The best outcome would be an increased offer from HBC’s controlling shareholder, which would allow Catalyst a graceful exit.

The second possible play would see Catalyst somehow join Mr. Baker’s group in taking HBC private. Given the frigid relationship between the two factions, this seems unlikely.

The final alternative is Catalyst and other shareholders vote down Mr. Baker’s offer at a meeting scheduled for Dec. 17. That would likely mark a Pyrrhic victory, as HBC shares can be expected to once again trade at the $6 levels seen last summer, before the buyout was launched.

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