On February 27th, shareholders of Hudson’s Bay Co. voted overwhelmingly to approve a privatization of the firm following a contentious months-long takeover battle. The $2 billion take-private transaction led by HBC executive chairman Richard Baker was approved by more than 98% of shareholders who voted, including 94.46% of minority shareholders who were not part of the Baker-led privatization.

In an interview, Baker said his group paid more than they expected to privatize the retailer because hedge fund Catalyst Capital mounted a public challenge opposing the transaction. Catalyst’s tactics involved amassing shares and complaining to the Ontario Securities about the process. The hedge fund even suggested it would pay $11 a share to buy HBC itself.

“I think they did a very successful job. They got us to pay $11 a share,” Baker told the Financial Post on February 27th, adding that such “noise” and “aggression” is often part of hedge fund strategies.“It’s more than we imagined we would need to pay or should pay, but it’s a logical price and people seem to be very supportive.” He said the transaction was ultimately worth it because it gives liquidity to shareholders who wanted out, and removes the quarterly demands of public shareholders so needed investments can be made to help the retailer compete through improvements to both in-store and online shopping.

The privatization closed on March 3 and the company’s common shares were expected to be delisted from the Toronto Stock Exchange at the close of trading on March 4. Baker spoke about next steps and indicated that an immediate improvement would be the adoption of upgraded software that will allow customers to buy goods online and choose a specific store in the 89-store Canadian chain to pick them up. In addition to investment in online sales, which grew by double-digits in the recent third quarter, Baker also said that there will be upgrades to physical stores in the chain, which number nearly 250 around the world including Saks Fifth Avenue and Saks Off 5th.

Baker dismissed a suggestion that online retailer Amazon has established such as sizeable grip on the market that it is likely to put traditional in-store retailers such as HBC out of business. He pointed out that the Seattle, Wash.-based online behemoth has made investments in “bricks and mortar” locations through the purchase of Whole Foods and plans to roll out supermarkets in the United States.

Furthermore, Baker said that HBC plans to continue to differentiate itself through partnerships with unique brands. For example, Hudson’s Bay acquired Canadian franchise rights for Topshop and Top Man merchandise from the retailer in the United Kingdom, and Saks Fifth Avenue has forged a licensing agreement with Authentic Brands Group for the rights to the Barneys name, following the bankruptcy of the luxury retailer in the United States.

Baker’s New York-based company began its involvement with HBC as a minority shareholder when Jerry Zucker paid $1.1 billion to purchase and privatize the retailer in 2006. Baker’s firm subsequently bought the retailer in 2008 after Zucker’s death and was instrumental in taking the company public in 2012. He said on February 27 that the initial public offering that year was — like the current privatization — an attempt to provide liquidity to shareholders. “What happened was we bought it in 2008 and we had created a lot of value and cleaned up the business in a lot of ways, and it was an appropriate moment to allow our shareholders to be able to have liquidity in the open markets, public markets,” he said.

Since that time, “the world changed,” Baker said, adding that there were two distinct groups of shareholders within the company including a large group that wanted to “de-risk” by cashing out, and were not able to do so on the open market.“So we basically paid the people who wanted to leave – cash — and the people who wanted to stay are going to roll forward.”

At a February 26th meeting approving the latest privatization, votes were cast by investors holding 76.57% of outstanding shares eligible to vote.

Source: Financial Post
Source: Wall Street Review