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Catalyst fires back with bigger bid for Hudson's Bay

A woman holds a Hudson's Bay shopping bag in front of the Hudson's Bay Company (HBC) flagship department store in Toronto January 27, 2014.  Hudson's Bay Co said on Monday that it would sell its flagship downtown Toronto store and neighboring executive offices for C$650 million ($587.09 million) to Cadillac Fairview Corp and open a full-line Saks store in the leased-back space. The Canadian retailer, which completed its $2.4 billion purchase of U.S. luxury chain Saks Inc late last year, said it expects to open an approximately 150,000 square-foot, multi-level Saks in the fall of 2015, co-located with the current Hudson's Bay store.  REUTERS/Mark Blinch (CANADA - Tags: BUSINESS)
A woman holds a Hudson's Bay shopping bag in front of the Hudson's Bay Company (HBC) flagship department store in Toronto January 27, 2014. REUTERS/Mark Blinch

Catalyst Capital Group has swooped in with its own offer to take Hudson’s Bay Co. (HBC) private, a higher bid than the only other offer currently on the table.

The private equity firm has offered to purchase all outstanding shares of HBC for $11 per share, countering the $10.30 per share offer made by a group of majority shareholders led by HBC’s executive chairman Richard Baker.

Catalyst, which owns approximately 17.5 per cent of outstanding HBC shares, said in a statement released Wednesday that it is “deeply concerned” with the financial terms and structure of the Baker-led offer, calling it “inadequate” and one that undervalues the company. Catalyst said it plans on voting against the bid and urged other shareholders to do the same.

“The Catalyst offer is independently financed, superior in both value and treatment of shareholders and can be completed in a timely manner,” Catalyst partner and managing director Gabriel de Alba said in a statement.

“Catalyst is committed to taking the necessary steps to ensure that its superior offer is evaluated on its merits and that the board is able to liberate itself from the coercive influence of Richard Baker and act for us all.”

At the same time, the investment firm has filed a complaint with the Ontario Securities Commission over the Baker-led offer, which it alleges was “the result of a deeply flawed process.”

HBC’s board of directors accepted the majority shareholder offer last month, which represented a nine per cent increase from its initial offer of $9.45 per share. David Leith, the chair of the special committee tasked with analyzing the bid, said it offered “fair value” to the company’s minority shareholders.

The retailer released a statement Wednesday afternoon that said the special committee will review the Catalyst offer to determine “the course of action that is in the best interests of HBC and the minority shareholders.”

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. The group has said it is not interested in alternative transactions.

Catalyst also raised questions about the valuation behind the Baker group’s bid, particularly when it comes to HBC’s real estate portfolio, which has been touted as a lucrative opportunity for investors. According to an independent appraisal conducted on behalf of the special committee, HBC’s real estate value is worth $8.75 per share.

“Last year insiders disclosed a value of $28 per share for the real estate and now they want us to believe that over $2.5 billion of value has conveniently and suddenly disappeared,” de Alba said in a statement.

“HBC has not protected its minority shareholders and has allowed its large and sophisticated shareholders, apparently in breach of a standstill and duty of confidence, to create a control position with the benefit of insider information.”

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.

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