Catalyst Capital Group Inc. called for the Ontario Securities Commission (OSC) to block a takeover of Hudson’s Bay Co. — or at least postpone it — after Catalyst’s own bid for the flagging department store chain ran aground on December 2nd.

The private equity firm proposed to take HBC private for $11 per share — 70 cents better than the $10.30 per share currently on offer from HBC chairman Richard Baker and his group of shareholders. But a special committee, struck by HBC’s board of directors to probe the potential takeover, said Monday night that the Catalyst offer “is not reasonably capable of being consummated.”

“As a result, the Catalyst proposal cannot be a Superior Proposal,” the committee said in a statement.

The special committee said the deal “is incapable of being completed” because the Baker group refuses to sell their 57%. So the committee instead reiterated its previous recommendation for minority shareholders to support the Baker group’s $10.30 bid in the upcoming vote on Dec. 17.

Catalyst responded by filing a request for a hearing with the OSC, seeking an order to permanently block the Baker group transaction. Alternatively, Catalyst wants the OSC to postpose the Dec. 17 vote by at least three weeks, as well as an order for HBC to correct “numerous omissions and misrepresentations” in its recent management circular about the deal. If HBC won’t send a corrected circular, Catalyst wants the commission to freeze the Baker deal until HBC complies.

The OSC has scheduled a hearing for Thursday December 5th to review Catalyst’s request for intervention.

Catalyst said HBC failed to provide summaries of key real estate appraisals, including “prior valuation work” relating to the Saks Fifth Avenue flagship store. An appraisal commissioned by the special committee valued the Manhattan property at $2.1 billion, down from a $4.8 billion valuation in 2014. According to a fairness opinion provided to the special committee, HBC’s real estate is worth $8.75 per share, down from the company’s estimate of $35 per share in 2017.

Catalyst already filed a complaint with the OSC last week, accusing the Baker group of putting forward “a coercive offer through a non-arm’s length process that sought to preclude alternative bidders.”

In a letter to the special committee, the Baker group called Catalyst’s bid “an illusory offer, intended to mislead minority shareholders (and) manipulate the market.”

The group took issue with the Catalyst proposal’s “highly levered capital structure.”

“Catalyst’s reckless financing plans would swiftly add the Company to the long list of retailers that have been forced to close their doors, shed jobs and impact pensioners,” the letter reads.

The special committee said Catalyst answered its questions about financing and due diligence through the process, which saw the private equity firm extend a Friday Nov. 29 deadline into Monday evening on Dec. 2  to give the committee more time to deliberate and respond.

“The Special Committee gave careful consideration to the Catalyst proposal and the opportunity to pursue it,” the committee said. “The opposition of the Continuing Shareholders to the transaction proposed by Catalyst means the transaction is incapable of being completed.”

The Baker group said it has filed its own complaint to the OSC, accusing Catalyst of misleading shareholders about “adequacy of their publicly stated financing arrangements” and “their purported ‘blocking position.’”

“We have consistently stated that we are not, in our capacities as shareholders, interested in any transaction that would result in a sale of our interests in HBC – a fact that is well known by Catalyst,” the Baker group wrote. “The Catalyst Announcement is therefore a tactic, plain and simple, designed to confuse and mislead the markets and minority shareholders.”

The Baker group needs a majority of votes cast by other shareholders in the vote later this month. Catalyst owns just under one-third of the 100 million shares of HBC not held by the Baker group. Every share left unvoted helps the Catalyst cause.

Catalyst has said it has spoken to shareholders opposed to the transaction and believes there are enough votes to kill the deal – but it hasn’t filed any documents with regulators saying they have voting agreements with them to support the Catalyst position.

Shareholders, who hold a stock that traded as low as $6.22 this year, may ultimately have to decide between retaining ownership in a troubled public company led by Mr. Baker or selling their shares to create a troubled private company led by Mr. Baker.

Source: Globe & Mail
Source: Financial Post