(Adds quotes from governance expert, background on Baker’s involvement and retailers’ attempts to go private, Breakingviews link, closing share price; changes bylines)
By Harry Brumpton and Jessica DiNapoli
June 10 (Reuters) - Hudson’s Bay Co Executive Chairman Richard Baker said on Monday he had teamed up with other shareholders to offer to take the struggling Canadian department store operator private in a C$1.74 billion ($1.3 billion) cash deal.
The proposal comes as Hudson’s Bay has been shuttering its underperforming shops to cut costs as it competes with discount direct-to-consumer brands and e-commerce behemoths such as Amazon.com Inc.
It opens up Baker to investor scrutiny, given that the buyout consortium he put together is made up of shareholders who already own 57% of the company. Hudson’s Bay said it had set up an independent board committee to evaluate the offer, which is subject to a vote by a majority of shareholders not affiliated with Baker’s bid.
“If you don’t go through these processes, you are really vulnerable to a lawsuit alleging that you shoved this down their throats,” said Eric Talley, co-director of the Millstein Center for Global Markets and Corporate Ownership at Columbia Law School in New York.
Shares of Hudson’s Bay rose 45% to close at C$9.25, slightly below the C$9.45 that shareholders will receive under the proposed deal. The offer represents a 48% premium to Friday’s closing share price. At its peak in 2015, the retailer was worth almost $30 per share.
Hudson’s Bay, which owns the Saks Fifth Avenue and Lord & Taylor retail chains, is the latest challenged retailer to consider going private. Last year, members of Nordstrom Inc’s founding family offered $8.4 billion for the company, but abandoned the bid once that company’s special board committee rejected it.
“While we continue to believe in Hudson Bay’s long-term potential, it has become clear that the significant challenges, risks and uncertainties facing Hudson Bay in the rapidly evolving retail environment are best addressed in a private market setting,” Baker said in a statement.
Baker’s buyout consortium includes Rhone Capital, WeWork Property Advisors, Abu Dhabi Investment Council and Abrams Capital Management.
Hudson’s Bay had said last month it was pursuing strategic alternatives such as a sale or merger for its department store Lord & Taylor.
Management has resisted calls from activist investor Jonathan Litt’s Land and Buildings Investment Management LLC to also sell Saks Fifth Avenue. A source familiar with Land & Buildings’ thinking said the hedge fund considers Baker’s offer significantly inadequate.
Hudson’s Bay also said on Monday it would sell its stake in its real estate joint venture in Germany to Signa Retail Holdings in a deal valued at C$1.5 billion.
Proceeds from its Signa deal will be used to reduce Hudson’s Bay’s debt, making a take-private deal more easy to finance.
Hudson’s Bay real estate could be worth as much as $6.4 billion or $35.24 per share, the company said in 2017. However, that figure included the Lord & Taylor flagship store, which the company sold to WeWork and partner Rhône Capital for $850 million in October 2017, and a Vancouver property owned by the company’s RioCan joint venture, since sold for $675 million.
Land and Buildings and other shareholders have criticized Hudson’s Bay for not doing enough to capitalize on the value of its properties.
Investment bank JPMorgan Chase & Co worked with Hudson’s Bay on its deal to sell its stake in its German real estate joint venture, and will also advise the retailer’s special board committee in evaluating Baker’s proposed deal.
The special board committee will oversee the preparation of a formal assessment of the offer by an additional independent valuator, Hudson’s Bay said. Toronto-Dominion Bank is in line to win that role, according to a person familiar with the matter.
Hudson’s Bay, North America’s oldest company, was taken over in 2008 by Richard Baker’s private equity firm NRDC Equity Partners, which already owned Lord & Taylor.
Baker took the company public in 2012, following up with a string of acquisitions, including Saks Fifth Avenue for $2.9 billion, Gilt Groupe for $250 million, and German department store chain Galeria Kaufhof from Metro Group for $3.2 billion.
To bolster the company’s finances while retaining his influence over Hudson’s Bay, Baker sold stakes in the firm in separate transactions to other investors who aligned with him in the board room.
Other department store retailers including Sears Holdings Corp and J C Penney Co Inc have faced financial troubles as more consumers buy online.
Sears Chairman Edward Lampert also orchestrated deals to keep the retailer alive, before it filed for bankruptcy last year. He also became the company’s biggest creditor.
Reporting by Harry Brumpton and Jessica DiNapoli in New York; Additional reporting by Debroop Roy in Bengaluru; Editing by Shailesh Kuber and Richard Chang