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Activist investor Litt may seek removal of Hudson's Bay directors

By Nichola Saminather
FILE PHOTO: A man exits a Hudson's Bay department store in Toronto, Ontario, Canada, June 6, 2016. REUTERS/Chris Helgren/File Photo

By Nichola Saminather

TORONTO (Reuters) - Activist investor Jonathan Litt ratcheted up pressure on Hudson's Bay Co on Monday, calling a special shareholder meeting potentially to remove directors, in a sign of escalating tension between two investors who hold different views about the future of the department store operator.

HBC Executive Chairman Richard Baker sees Hudson's Bay as a retail company with real estate assets, while Litt wants HBC to transform itself into a real estate play and pull away from the retail space.

The exit of HBC CEO Gerald Storch on Friday has given Litt an opening to intensify his attack on a company that has struggled to turn sales around..

Litt's push for a special meeting sets the stage for a potential high-profile proxy battle in Canada, where activists have had mixed results compared with campaigns in the United States.

"We are evaluating a number of proposals on which we believe the voices of shareholders should be heard – including the removal of directors from the board – and will announce the full slate of proposals and next steps in the special meeting process shortly," Litt, founder of hedge fund Land & Buildings Investment Management, said in a statement.

Land & Buildings holds about 5 percent of the shares of HBC, which owns the Saks Fifth Avenue and Lord & Taylor retail chains. The hedge fund has been pushing the Canadian retailer to take action to extract value from its substantial real estate holdings and consider other options, including the sale of Saks Fifth Avenue, to boost its share price.

Storch's exit underscored the board's attempt to "buy time and placate investors to address underperformance and undervaluation," Litt added.

'NO CONFIDENCE'

Land & Buildings has no confidence that the board will take the action necessary to address the undervaluation of its shares, Litt said.

Shareholders require a 5 percent stake under Canadian rules to call for a special meeting.

"When the status quo strategy has proven unsuccessful, shareholders will support change, so Land & Buildings will be at least in some measure successful," said Brian Madden, portfolio manager at Goodreid Investment Counsel in Toronto, who does not hold HBC shares.

"There's better than even odds that more aggressive moves will be taken to monetize the value of the real estate assets."

HBC did not immediately respond to a request for comment.

Litt and Baker have both made their names in the real estate business but have so far failed to agree on the best path for the company.

Baker on Sunday pledged his commitment to the company's growth strategy in Europe and affirmed his faith in the future of department stores. His backing comes at a time when bricks-and-mortar operators are ceding market share to more nimble online operators.

Litt has said the highest value and best use for the company's "truly unique" real estate is likely not as department stores, and has valued HBC's real estate at C$35 a share.

HBC shares fell as much as 5.1 percent, the lowest in more than six weeks, but recovered some of the losses to trade down 0.8 percent at C$11.86 on Monday. That put this year's loss at 10 percent, compared with a 15.1 percent gain in the S&P 500 Retailing Index <.SPXRT> and a 3.8 percent rise in the Toronto Stock Exchange's S&P/TSK composite index .

Baker will serve as the interim CEO during the search for a replacement for Storch, who will step down effective Nov. 1, the company said on Friday.

"Baker... continues to call the shots," Litt wrote. "This is even more problematic given how Baker has been stonewalling Land & Buildings and the investment community regarding a plan to unlock the value of the real estate embedded in the company."

(Reporting By Nichola Saminather; Additional reporting by John Tilak; Editing by Jeffrey Benkoe and Dan Grebler)