Exclusive: Hudson's Bay taps debt adviser amid Neiman Marcus bid challenges - sources

Mon May 8, 2017 5:52pm EDT
 
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By Jessica DiNapoli and Lauren Hirsch

(Reuters) - Canada's Hudson's Bay Co (HBC.TO: Quote) has hired a debt restructuring adviser to review potential options for combining its business with debt-laden U.S. department store operator Neiman Marcus Group, according to people familiar with the matter.

The move is the clearest indication yet that Neiman Marcus' $4.7 billion debt pile poses significant challenges to a merger between Hudson's Bay, owner of the Lord & Taylor and Saks Fifth Avenue retail chains, and private equity-owned Neiman Marcus.

Hudson's Bay Executive Chairman Richard Baker set his sights on Neiman Marcus, operator of 42 eponymous stores across the United States and two Bergdorf Goodman stores in Manhattan, two months ago, after larger U.S. peer Macy's Inc (M.N: Quote) spurned his acquisition overtures.

Since then, deal talks between Hudson's Bay and Neiman Marcus have made little progress, the sources said.

Hudson's Bay has now tapped investment bank Evercore Partners Inc (EVR.N: Quote), and has asked it to come up with ways that the two companies can combine without Hudson's Bay assuming the full burden of Neiman Marcus' debt, the sources said, asking not to be identified because the matter is confidential.

Hudson's Bay and Neiman Marcus did not respond to requests for comment. Evercore declined to comment. Hudson's Bay shares rose as much as 3.1 percent on Monday in Toronto and ended trading up 1.1 percent at C$11.43.

Neiman Marcus' $2.8 billion loan and $1.6 billion in bonds are trading at deep discounts to their face value, indicating that creditors do not expect to get paid in full, as the company grapples with consumers' changing spending habits, weak mall traffic, and the increased price transparency brought about by the rise of internet shopping.

An acquisition of Neiman Marcus would normally require its acquirer to assume its debt at its face value. Hudson's Bay, which already carries about $2.4 billion in debt on a market capitalization of $1.5 billion, would essentially triple its debt load by doing so.   Continued...

 
A man exits a Hudson's Bay department store in Toronto, Ontario, Canada June 6, 2016. REUTERS/Chris Helgren/File Photo