Hudson’s Bay Co.’s (HBC) board of directors has accepted a revised offer from a group of majority shareholders led by executive chairman Richard Baker, bringing the retailer a step closer to going private.
HBC said on Monday that it had entered an agreement with the Baker-led group after the shareholders boosted their privatization offer to $10.30 per share, a nine per cent increase from its earlier proposal of $9.45 per share. The initial offer had been criticized by activist shareholder Land and Buildings and the company’s special committee analyzing the bid as being “inadequate.”
While the board has accepted the go-private offer, the deal still requires support from a majority of the company’s minority shareholders in order to be approved. The Baker group holds approximately 57 per cent of outstanding HBC shares.
“We are pleased to have reached an agreement with respect to a transaction that provides immediate and fair value to the minority shareholders,” David Leith, the chair of HBC’s special committee, said in a statement.
“The special committee is confident that this transaction represents the best path forward for HBC and the minority shareholders.”
The $10.30 per share cash bid is a 62 per cent premium on HBC’s stock price before the bid was announced in June. Shares of the retailer jumped as much as nearly eight per cent on Monday to $10.19.
Baker and the group of majority shareholders hope the go-private bid will help turn around the struggling retailer, which has grappled with dismal sales amid a retail environment upended by e-commerce behemoths like Amazon.
Still, the initial offer had been criticized by some minority shareholders, including Land and Buildings and Catalyst Capital, for undervaluing the company, particularly when it came to its real estate portfolio.
The special committee hired two international real estate firms to analyze the value of the company’s real estate, something that has been touted by executives as a lucrative opportunity for investors.
Based on the analysis, the company said the real estate portfolio is worth $8.75 per diluted share, significantly less than the $31 per share estimate dating back to 2017. The company said the current valuation reflects a combination of several factors, including “lower current market rents, the increasing risks associated with the retail industry, recent operating challenges and a deterioration of retail real estate market conditions.”
“Additionally, based on the appraisals, the special committee determined that redeveloping the company’s real estate would not result in creating additional value for shareholders in the foreseeable future, compared to the certain value provided by the transaction,” HBC said in a statement.
A vote on the privatization offer is expected to take place in December.
The retailer, which operates the Hudson’s Bay, Saks Fifth Avenue and Saks Off Fifth department store chains, is in the midst of a turnaround effort led by chief executive Helena Foulkes. Since joining HBC last February, Foulkes has been shedding struggling businesses and shifting the focus to the company’s two largest divisions – Saks Fifth Avenue and Hudson’s Bay.
HBC reported a net loss from continuing operations of $462 million in the most recent quarter, which was marred by store closures, product lineup changes and poor sales at Hudson’s Bay.