Private equity firm Catalyst Capital Group Inc. announced August 19th that it has acquired an additional 10.05% stake in Hudson’s Bay Co., as a battle over the fate of one of Canada’s oldest and most storied companies heats up.

Catalyst purchased the 18.4 million shares for $187 million, or $10.11 apiece, through an unsolicited offer to shareholders. The acquisition comes on top of its existing undisclosed holding in the retailer.

The buy-in by Catalyst comes as Hudson’s Bay chairman Richard Baker is leading an attempt to privatize HBC, and appears aimed at blocking, or at least forcing Baker to increase, that bid.

The management buyout offer is $9.45 a share, and has already been deemed “woefully inadequate” by activist shareholder Jonathan Litt, whose Land and Buildings Investment Management has been a longtime critic of Baker’s stewardship of the retailer. Even an initial analysis by the HBC’s special committee of directors has found the bid inadequate; it is seeking a formal valuation of the company’s common shares, expected to be completed in September.

Baker’s group, which controls about 57% of HBC shares, needs to win approval from a majority of the 43% minority to get the deal done.

Catalyst and Litt have also reportedly purchased an undisclosed number of HBC shares from the Ontario Teachers’ Pension Plan, which had been poised to sell its 10%  stake to an entity controlled by Baker. Baker and Teachers’ mutually agreed to terminate that agreement in June, according to a statement.

Catalyst’s moves have sparked speculation as to whether the firm is engaging in a form of “merger arbitrage” — where the buy-in comes with the intention of extracting a higher price to push through the privatization — or whether it is a longer-term play to realize value from the company’s crown jewel real estate holdings.

“Catalyst is committed to working with the Special Committee and the HBC Board to seek out every alternative that can maximize value for all shareholders, whether through a sale process, dividend distributions of the cash to be realized from the sale of the Company’s key European assets or otherwise,” the firm said in a news release.

Litt’s group has been more forceful, calling for Baker’s removal from the board over the privatization proposal, which he derided as “dead on arrival.”

Litt, like Catalyst, has stressed the value of HBC’s real estate — a fleet of stores located in historic buildings in coveted downtown shopping districts across North America.

But unlocking that value could mean drastic changes for the iconic retailer, said Fred Waks, chief executive at Trinity Development Group Inc., who previously served as president of RioCan REIT. The problem for HBC is that each of its prime real estate assets is far less attractive when a department store is the main tenant.

“The real estate is only as good as the cash flow coming out of it,” Waks said. “The whole sector is in flux and so it would be very hard to maximize the values with the existing stores in place.”

“There’s no question that the Hudson’s Bay Company has incredible real estate,” Waks said. “The question is, is (Baker) prepared to close down some very key stores in the operation to accommodate different uses for that great real estate?”

Saving the ailing department store chain, Baker wrote in June, requires the kind of “time and patient long-term capital that is better suited in a private company context.”

Catalyst was founded in 2002 and bills itself as a specialist in “control and/or influence investments in distressed and undervalued Canadian situations.” Its current holdings include Orlando, Fla.-based Advantage Rent A Car and the majority stake in Callidus Capital Corp., an asset-based lender whose second-largest shareholder just agreed to buy out minority shareholders for 75 cents a share. The shares once traded for more than $20 apiece.

Source: Financial Post


HBC sells Lord & Taylor to fashion rental chain Le Tote for $100M US

The Hudson’s Bay Company has struck a deal with fashion rental chain Le Tote that will see HBC sell its Lord & Taylor unit to Le Tote for $100M US.  

Under the terms of the deal announced August 28th, Le Tote will get the Lord & Taylor brand name and control of all 38 of the chain’s luxury department stores from HBC, along with all the inventory of clothing and other items.  HBC, meanwhile, will retain control of all the real estate assets that Lord & Taylor stores are sitting on.  

Lord & Taylor booked about $1.4 billion in sales last year, but the division didn’t turn a profit for its parent company. So HBC, which is currently in the middle of a takeover fight for the future of the company, is selling it to Le Tote, a fashion subscription service that lets women rent clothing and accessories for a flat monthly fee.

HBC isn’t exiting the business entirely, as it will retain a minority equity stake in the company, and in three years time the two companies have agreed to reassess how all the locations are doing and whether or not HBC may take back some of those locations.  

Le Tote says it plans to continue to employ “the vast majority” of people who currently work for Lord & Taylor.

Source: CBC