Hudson’s Bay Co.’s stock skyrocketed 42 per cent on Monday after the retailer announced that it is reviewing a bid from a group of shareholders to take the company private.
The Canadian retailer will also exit the European market, selling the company’s remaining 49.9 per cent stake of its real estate joint venture in Germany to its partner, Signa, for US$1.5 billion.
The group of shareholders, which includes HBC’s executive chairman Richard Baker, has offered to purchase the company for $9.45 per share, a 48 per cent premium on Friday’s closing price. The group controls 57 per cent of the company’s shares. According to Bloomberg, the cash bid is valued at $1.74 billion.
"While we continue to believe in HBC’s long-term potential, it has become clear that the significant challenges, risks and uncertainties facing HBC in the rapidly evolving retail environment are best addressed in a private market setting," Baker said in a statement.
"Our all-cash proposal would provide HBC’s public shareholders the ability to realize immediate and certain value for their shares at a substantial premium while transferring the risks and uncertainties facing HBC to the continuing shareholders."
HBC has formed a special committee of independent directors to review the bid, and said in a statement that “no decision has been made and it intends to carefully and thoroughly review the proposal with the assistance of its outside financial and legal advisors.”
The shareholder group, which also includes Rhone Capital LLC, WeWork Property Advisors, Hanover Investment (Luxembourg) SA and Abrams Capital Management, said it is not interested in alternative options such as a third party acquisition or a sale of the group’s stake in the company.
The offer of $9.45 per share is equal to the same price that the Ontario Teachers’ Pension Plan Board paid for a 10 per cent stake in HBC in January 2019.
“Since that time, the company’s stock price has meaningfully declined, as have the stock prices of other Canadian and U.S. retailers,” Baker said.
“Notwithstanding HBC’s stock price decline, our proposal provides all public shareholders the same opportunity to realize value for their investment and transfer all risks and uncertainties facing HBC to the (shareholder group).”
The offer comes as HBC – which has been grappling with struggling sales for years – undergoes a turnaround effort led by chief executive Helena Foulkes.
Since joining the company in February 2018, Foulkes repeatedly said that “everything is on the table” when it comes to improving HBC’s operations.
So far, she’s made several bold moves, including the merger that reduced the company’s stake in its German operations and the shuttering of its Home Outfitters business in Canada. The company is also reviewing strategic options for its Lord and Taylor business, which HBC said includes a sale of the division.
Bruce Winder, a partner at the Retail Advisors Network, said going private will allow Foulkes to make the drastic changes necessary to improve operations at a faster pace.
“She won’t have to manage to quarters and spend her time managing to quarterly optics,” he said. “She can make the quick, drastic moves without those things hanging over her head.”
Activist investor Jonathan Litt, founder of Land & Buildings Investment Management LLC, has been pushing HBC to overhaul its operations and take advantage of its real estate portfolio, sending a letter to shareholder says recently as last November pushing for change. He has also previously called for Hudson’s Bay insiders to explore taking the company private.
“Land & Buildings, as a long-term significant shareholder of Hudson’s Bay, continues to believe that the Company’s stock is egregiously undervalued,” Litt said in the letter issued in November.
“Hudson’s Bay shares are trading at a fraction of the company’s estimated real estate value of C$31 per share.”
Land & Buildings had not commented on the proposed offer as of Monday afternoon.
With files from Bloomberg