Why HBC might not go private after all

A man exits a Hudson's Bay department store in Toronto, Ontario, Canada June 6, 2016. REUTERS/Chris Helgren

Catalyst Capital Group says it has enough support to shut down the privatization offer made by a group of Hudson’s Bay’s (HBC) shareholders, led by the company’s executive chairman Richard Baker.

The private equity firm released a statement Thursday that it and other shareholders holding 28.24 per cent of the company intend to vote against the recently-revised offer from the Baker-led group, which was approved by HBC’s board of directors last week. The bid would see the group of majority shareholders take the retailer private for $10.30 per share, a nine per cent increase from an earlier proposal of $9.45 per share.

“The agreement that the company entered into is so fundamentally conflicted, that it shows the amount of leverage Richard Baker has over the board and management,” Catalyst Capital’s managing director Gabriel de Alba said in a statement.

“It is unconscionable that the board would use shareholders’ funds in a severely undervalued share buyback with massive tax leakage and dress it up as a premium transaction.”

Baker and the group of majority shareholders hold approximately 57 per cent of outstanding HBC shares and need support from a majority of minority shareholders in order to get the offer approved. At 28.24 per cent, Catalyst’s vote against the bid would be enough to derail the privatization process.

Catalyst, which has been critical of the Baker-led bid, has called on HBC’s board to release other members of the group in order to consider other strategic options, or allow the offer to expire and run a true sale process.

“Catalyst is aware of a number of strategic investors that are interested in participating in a process that is open and not constructed to benefit an insider, and we have no doubt that the HBC board is also aware of these interested parties,” de Alba said, adding that Catalyst is also prepared to be a participant in the process. When asked by Yahoo Finance Canada Catalyst Capital did not provide further details.

A spokesperson for HBC’s special committee, which was tasked with analyzing the privatization bid, said in an emailed statement to Yahoo Finance Canada that the offer “is in the best interests of HBC and fair to the minority shareholders.”

“It provides immediate and certain value at a significant market premium,” the spokesperson said.

“The special committee believes this offer accurately reflects the company’s expected performance due to the continued investment required at HBC, the deteriorating retail environment and the current market valuation of the company’s real estate assets.”

The Baker group believes taking the company private is the best way to turn around the struggling retailer, which has grappled with dismal sales in a retail environment upended by e-commerce behemoths like Amazon. A vote on the privatization offer is expected to take place in December.

Download the Yahoo Finance app, available for Apple and Android.