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Hudson’s Bay Co. is looking at acquiring U.S. upscale rival Saks Inc., sources say.

Mary Altaffer/AP

Hudson's Bay Co. is looking at the possibility of acquiring its U.S. upscale rival Saks Inc., which would pave the way to introducing the prestigious Saks Fifth Avenue banner to Canada, as well as its discount sister Off Fifth.

Saks has been on the block for about a month, but U.S. private equity groups also are believed to be considering a bid, sources familiar with HBC said Monday.

At this point, however, the price is too rich for HBC chief executive officer Richard Baker, said one source.

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Hudson's Bay and Saks officials would not comment.

HBC, which owns Hudson's Bay (formerly the Bay) across Canada, also owns Lord & Taylor in the United States but south of the border the department-store retailer has stores mainly in the U.S. Northeast.

The acquisition of Saks would bring the prominent name to Canada, possibly converting some Hudson's Bay stores to that banner or establishing it within existing outlets, while giving the company a wider U.S. store base and a clearer upscale edge against rising competition.

It would allow Mr. Baker, a U.S. real estate specialist, to get more use out of HBC's existing store space in Canada for Saks or Off Fifth, and set the groundwork for HBC to generate savings in its ongoing turnaround efforts.

Mr. Baker could introduce Saks into Hudson's Bay stores such as the ones at Bloor Street West and Yonge Street in Toronto or as part of large flagship stores across the country in a "handful" of locations, a source said. As well, he could convert other existing stores to Off Fifth and run the Saks e-commerce site in this country.

With high-end U.S. department-store retailer Nordstrom Inc. arriving in Canada next year, HBC could convert some nearby Bay stores to Saks to take on the newcomer, the source suggested.

Retailers are vying for attractive store space, of which there is a dearth in Canada. But HBC would have to ensure that Saks didn't steal business from its flagship stores here, industry watchers said.

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HBC is in a stronger position than it has been for years to take over Saks. The Toronto-based retailer has enjoyed signs of a turnaround since Mr. Baker bought the troubled merchant almost five years ago.

He sold most of the leases of ailing discount Zellers stores to U.S. competitor Target Corp. for $1.8-billion and hired Bonnie Brooks, a seasoned fashion retail executive, to orchestrate a reinvention of Hudson's Bay. Last week, HBC announced that Ms. Brooks will become vice-chairman and another experienced HBC executive, Liz Rodbell, will replace her as president.

HBC already has Saks knowledge within its ranks. Mr. Baker has hired a number of Saks executives, including HBC chief operating officer Donald Watros and Marc Metrick, chief marketing officer.

Last year, Mr. Baker looked at teaming up with U.S. luxury rival Bloomingdale's in a bid to feature its shops within Hudson's Bay stores, but no deal was reached. Mr. Baker has also had talks with Nordstrom in the past, sources said.

In its first quarter, HBC reported that same-store sales at its Canadian stores rose 7.6 per cent at outlets open a year or more, while those sales dropped 1.4 per cent at its smaller U.S. Lord & Taylor division.

HBC's loss narrowed to $21.2-million or 18 cents a share from $47-million or 45 cents in the year-earlier period. Sales rose 4.2 per cent to $884-million.

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