Jerry Zucker knew that his $1.1-billion hostile bid for Hudson's Bay Co. wouldn't be easy. But persuading shareholders to sell to him has its particular challenges.
Strategic options for taking over companies are usually quite straightforward: Make the bid, contact major shareholders, hold private meetings and try to get commitments ahead of the vital votes. That way would-be acquirers have a tight rein on proceedings, and can readily make adjustments to the price or other terms in order to pull off the deal.
But in the case of HBC, which owns the Bay and Zellers, things are different.
"It will be much more difficult for him to acquire the shares," says Stephen Foerster, finance professor at the University of Western Ontario's Richard Ivey School of Business.
HBC isn't just any Canadian company -- it's the oldest. It's one of two traditional department stores left standing. And it's not only owned by a number of institutions, but by a fair number of regular Canadians. Persuading them to sell to a South Carolina businessman they've likely never heard of just isn't an easy task.
"There is a Canadian patriotism that may come into play for a lot of these Canadian retail investors," Prof. Foerster says.
Small investors may want to hear from the low-profile Mr. Zucker, a wealthy man with interests in a range of industries -- but not retailing. So far, he has stayed in the background, letting his key lieutenant, Robert Johnston, take the public lead.
"The more secretive you are, the less attractive a personality you become," says Basil Kalymon, a finance professor at Ivey.
Mr. Zucker may have to play a more visible role, Prof. Kalymon says. He may need to reach out to individual investors through newspaper ads, direct mailings or face-to-face meetings.
And he may have to be more explicit in how he intends to shake up the retailer's management in trying to turn around its fortunes. Retail investors may need to be assured that HBC will survive a takeover intact.
Mr. Johnston acknowledges the challenge in wooing HBC shareholders because of the large number of retail investors. He figures that about 25 per cent of shareholders are small investors, some of them former and current HBC employees.
The rest are institutional shareholders, including a growing number of U.S. hedge funds, wealthy families whose investments are run by professionals, and Mr. Zucker, who has almost a 19-per-cent holding.
And there's no doubt he's dealing with big numbers: He had to mail "tens of thousands" of his offer circulars to shareholders -- a costly process -- while suitors in other takeovers would normally send only between 1,000 and 3,000, Mr. Johnston estimates.
But he says he has already communicated with between 25 and 50 small investors, by telephone or e-mail. And there is always a possibility that Mr. Zucker may appear publicly, take out ads or send shareholders mailings, Mr. Johnston says.
"It is more challenging because the number of shareholders that own only a few shares is very extensive," he says. "Reaching them will be difficult."
Difficult, but certainly not impossible.
HBC is a company that has underachieved. Driving home that point, and the need for a fresh approach, may help woo uncertain shareholders, says Ramy Elitzur, a professor of financial analysis at the University of Toronto's Rotman School of Management.
With the right management in place, Mr. Zucker could boost the retailer's performance, Prof. Elitzur says. So far, Mr. Zucker hasn't stated whether he will replace existing executives.
Nevertheless, Mr. Zucker may have to go a step further to appease disgruntled shareholders who bought into the company when its shares were trading closer to $30, says George Athanassakos, a finance professor at Ivey.
On Friday, HBC shares closed at $15.43, above the $14.75-a-share bid.
He should consider offering them preferred or non-voting shares, so that shareholders can benefit from an improved HBC, Prof. Athanassakos says.
"If Zucker's company does well in the future they may be able to realize a gain."
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