Catalyst Capital Group Inc. says it has lined up “substantial” opposition to the planned privatization of Hudson’s Bay Co. by a group led by HBC chairman Richard Baker.

In a strongly worded statement October 31st, Catalyst, a private equity firm, called the planned transaction approved by the HBC’s board “nothing more than a severely undervalued share buyback at the expense of shareholders.”

The statement accused the retailer’s board of being “hopelessly conflicted,” and claimed there is enough shareholder opposition to vote down the Baker-led takeover, which was sweetened to $10.30 a share from $9.45 earlier this month.

“Catalyst and other shareholders representing approximately 28.24% of the common shares of HBC intend to vote against the agreement, representing a majority of the minority shareholders,” the statement said.

The private equity firm, which added to an initial block of HBC stock through a tender offer to other shareholders earlier this year, exercises control or direction over more than 32 million shares of HBC, representing about 17.49% of the retailer’s common shares.

“The agreement that the Company entered into is so fundamentally conflicted that it shows the amount of leverage Richard Baker has over the Board and Management,” Gabriel de Alba, managing director and partner at Catalyst said in the statement.

“It is unconscionable that the Board would use shareholders’ funds in a severely undervalued share buyback with massive tax leakage and dress it up as a premium transaction.”

The planned privatization of HBC has faced opposition from minority shareholders since it was first proposed by Baker’s group in June, with the most vocal criticism coming from Jonathan Litt, founder and chief investment officer of Land and Buildings Investment Management LLC. Critics claimed the planned transaction vastly undervalued HBC’s prime real estate.

A special committee of HBC’s board of directors retained two expert valuators, and estimated that the 79 properties were worth $8.75 per diluted share, much less than the critics have maintained.

Earlier this month, the special committee unanimously recommended that taking the “immediate and certain value” from Baker’s group was the better option compared to investing the “substantial capital” required to keep the struggling chain relevant.

Source: Financial Post