Skip to main content

The sweetened offer from Hudson’s Bay Co. executive chairman Richard Baker to the retailer’s minority shareholders looks set to end a stalemate that was sure to bring pain to all sides.

Catalyst Capital Group Inc.’s hardball tactics in the battle for Canada’s oldest corporation paid off. The Toronto-based private-equity fund led by financier Newton Glassman had a 17.5-per-cent stake in HBC and became the loudest critic of the buyout first announced in early June. The agreed-upon bid price – although far below what dissident investors have contended HBC is worth – prevents further erosion in the shares as the department-store sector struggles against online competition.

Late Friday, Catalyst pledged its support for an $11-a-share bid from Mr. Baker and his fellow controlling shareholders. That is 70 cents higher than the previous offer that minority shareholders spurned despite the HBC board’s recommendation. It is also the price Catalyst itself had previously proposed to offer for the owner of the Hudson’s Bay and Saks Fifth Avenue banners.

Story continues below advertisement

The offer, at more than $1-billion, is no windfall for shareholders including Catalyst, which will sell its shares for 8.8 per cent more than it bought most of its interest, said Julian Klymochko, veteran arbitrageur and chief executive of Accelerate Financial Technology Inc. But it is a better alternative than the deal falling apart.

“The worst-case scenario is to end up in that purgatory where the stock tanks 50 per cent and there’s really no hope for public shareholders. So it is a small win here,” Mr. Klymochko said.

Before taxes, Catalyst will make a profit of about $16.5-million on the 18.5 million shares it bought in a mini-tender last summer at $10.11 each. It has not disclosed the price it paid for the other 13.7-million shares it bought previously, but proceeds will likely be much higher.

None of the players involved in the deal would comment on Sunday about what led to the break in the acrimony.

Catalyst’s stake, along with that of other minority shareholders, was enough to block the bid by Mr. Baker and his allies, which include Rhone Capital LLC, Hanover Investments (Luxembourg) SA and Abrams Capital Management LP. Although the Baker group collectively controlled 57 per cent of HBC shares, a majority of minority shareholders had to vote in favour for a buyout to be successful.

Catalyst opposed the Baker group on several fronts, including launching a complaint with the Ontario Securities Commission that resulted in HBC having to postpone the shareholder vote. It appeared the bid was set to fail anyway, as minority holders stuck to their view that the value of the offer did not reflect the worth of HBC’s real estate.

A major point of debate is the flagship Saks store in Manhattan. In 2014, it was valued by a lender at $4.1-billion. This fall, real estate appraisers pegged it at $2.1-billion – with $1.64-billion in debt. HBC argued that the deteriorating retail landscape, especially on that New York strip, had hurt the value. Investors did not buy the explanation, which was part of the calculation that HBC’s real estate was worth $8.75 of the last offer.

Story continues below advertisement

Mr. Baker wants to restructure HBC away from the public spotlight, and the prospect of the takeover battle dragging on would only hurt those efforts. The stock has weakened despite several asset sales and store closings, as the business environment has worsened. The shares traded at nearly $29 in 2015, but had fallen to $6.22 just before Mr. Baker announced his privatization plan.

Not all minority shareholders are enamoured with the 6.8-per-cent increase in the bid. Sandpiper Group, a real estate private equity company, said HBC is worth significantly more but added, “it is a good outcome to arrive at given the controlling shareholder group involved.” Alyssa Barry, Sandpiper’s vice-president of capital markets, declined to say if the firm now will vote in favour of the bid.

Another dissident, Ortelius Advisors LP, will proceed with a lawsuit against HBC and Mr. Baker, according to a spokesman. The New York activist hedge fund is seeking an injunction against the deal, arguing that HBC is understating the true value of the property and presenting “misleading negative views” of the company’s prospects.

Related topics

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies