A minority shareholder of Hudson’s Bay Co. is calling for the ouster of the retailer’s executive chairman, Richard Baker, if his $1-billion privatization offer fails.

U.S. hedge-fund firm Land & Buildings Investment Management LLC, which has long called on Mr. Baker to sell HBC’s properties, accused the executive chairman of disenfranchising minority shareholders and threatening that their stock will lose value if they reject his proposal of $9.45 a share.

“This process and Baker’s approach has decisively demonstrated that he is unqualified and far too conflicted to continue as governor of the board of directors, and, for that matter, to continue as a director of HBC at all,” Land & Buildings founder Jonathan Litt said in an open letter to shareholders.

The letter was sent to media a day after Mr. Litt met with an HBC special committee that is evaluating the bid. In its initial assessment, the committee of independent directors deemed the offer “inadequate.” It did not provide further detail.

Mr. Litt and other dissidents say Mr. Baker’s offer grossly undervalues the retailer’s properties, including its HBC building in downtown Vancouver, and Saks Fifth Avenue in Manhattan, which HBC once valued at $2.9-billion.

Mr. Baker and a group of shareholders representing 57% of the retailer’s shares support the privatization proposal. For the deal to succeed, a majority of the minority shareholders – or another 21.5% – must support the offer.

It is unclear whether dissidents own enough stock to kill the bid by not accepting the Baker group’s offer. Toronto-based investment firm Catalyst Capital Group Inc., which owns some HBC stock, has offered $10.11 a share for a minority stake to block the Baker group. Mr. Baker has said the Catalyst proposal is coercive, and that HBC shares could fall precipitously to pre-offer levels if minority shareholders do not accept his bid.

The price of HBC stock was below $7 apiece before Mr. Baker’s bid became public in early June. It is now about $9.70 a share, between the prices Mr. Baker’s group and Catalyst are offering. The Catalyst offer expires on Aug. 16. Mr. Baker’s proposal is not yet official, and a vote will not be scheduled until after it becomes formal and after the special committee provides its final assessment.

“In the event that the management buyout group is unsuccessful in their woefully inadequate bid for HBC, we intend on requisitioning a special shareholders’ meeting to remove Richard Baker from the board and to elect a respected former executive with intimate knowledge of the company …” Mr. Litt said in the letter.

It is unclear whether Mr. Litt would actually requisition a meeting and whether his hedge fund could dethrone Mr. Baker, given that the executive chairman has the support of the majority of shareholders.

A spokesman for Mr. Litt declined to comment. A spokeswoman for the special committee said it was continuing to have productive discussions with shareholders. A spokeswoman for the Baker group did not respond to a request for comment.

The privatization fight is occurring as Mr. Baker and his team race to keep the retailer relevant amid the growth of e-commerce and decline of other department-store chains.

Recently, HBC brokered a deal to lease the top floors of its main Vancouver and Toronto Hudson’s Bay stores to WeWork. It is also considering selling its Lord & Taylor chain and has a deal to exit its German department-store joint venture.

The European sale, expected to close in the fall, is worth $1.5-billion. Mr. Litt said that equates to more than $8 of value for each share. In the letter, he said the HBC board needs to investigate whether Mr. Baker is hiding the true value of the company and negotiating with other parties to sell off some of its properties.

If Mr. Litt manages to get the executive chairman removed, he wants new management to sell the real estate and distribute proceeds to shareholders.

Source: Globe and Mail