Definitive Agreement with Shareholder Group on
Revised Privatization Proposal Follows Independent and Thorough
Evaluation Process and Negotiations by Special Committee of the
Board of HBC and its Advisors
Transaction Delivers Substantial 62% Premium,
Provides Immediate and Certain Cash Value to HBC Minority
Shareholders
Hudson's Bay Company (TSX: HBC) ("HBC" or the “Company”) today
announced that, based on the unanimous recommendation of an
independent Special Committee of its Board of Directors (the
“Special Committee”) following an extensive review and analysis, it
has entered into a definitive arrangement agreement (the
“Arrangement Agreement”) with a group of HBC shareholders (the
“Shareholder Group”) to take the Company private.
Under the terms of the Arrangement Agreement, the common shares
of HBC not held by the Shareholder Group (who collectively own
approximately 57% of the common shares of the Company on an
as-converted basis), will be purchased for cancellation at a price
of $10.30 per share in cash. This price represents a premium of
approximately 62% to HBC’s closing share price on the Toronto Stock
Exchange on June 7, 2019, the last trading day prior to the
announcement of the Shareholder Group’s initial privatization
proposal, and a premium of approximately 52% to the 20-day average
closing share price on that date. The price also represents an
increase of 9% over the Shareholder Group’s initial proposal on
June 10, 2019 of $9.45 per share.
The Shareholder Group comprises individuals and entities related
to, or affiliated with, Richard A. Baker, Governor and Executive
Chairman of HBC; Rhône Capital L.L.C.; WeWork Property Advisors;
Hanover Investments (Luxembourg) S.A.; and Abrams Capital
Management, L.P.
The Special Committee of independent directors was established
by the HBC Board of Directors (the “Board”) to consider the initial
privatization proposal, as well as other alternatives available to
the Company, including the status quo, and, if it deemed advisable,
to negotiate with the Shareholder Group. Following a comprehensive
evaluation of the proposal, the Special Committee and its financial
and legal advisors engaged in extensive negotiations with the
Shareholder Group on pricing and other terms of the arrangement to
ensure the arrangement was fair to the HBC shareholders other than
the Shareholder Group (the “Minority Shareholders”). The Board
(excluding conflicted directors, who did not participate in
deliberations), having received the unanimous recommendation of the
Special Committee, determined that the arrangement is in the best
interests of HBC and fair to the Minority Shareholders. It
recommends that Minority Shareholders vote in favour of the
arrangement at the special meeting of shareholders to be held to
approve the arrangement.
David Leith, Chair of the Special Committee, said, "Over the
last four months, with the assistance of our independent financial
and legal advisors, we have conducted a thorough evaluation of the
Shareholder Group’s proposal and alternatives available to HBC to
maximize shareholder value. Following this comprehensive evaluation
and extensive negotiations with the Shareholder Group, and
consideration of the applicable risks and the opportunities and
alternatives available, we are pleased to have reached an agreement
with respect to a transaction that provides immediate and fair
value to the Minority Shareholders. The Special Committee is
confident that this transaction represents the best path forward
for HBC and the Minority Shareholders."
Transaction Rationale
The conclusions and recommendations of the Special Committee and
the Board have been based on a number of factors, including the
following:
- Compelling value proposition for Minority Shareholders in
deteriorating retail environment: The cash premium transaction
provides Minority Shareholders with immediate and certain value
that is expected to be higher than that realizable in the
foreseeable future. Continued industry headwinds and the
deterioration in operating performance have negatively affected the
Company’s financial results. Despite the execution of several
strategic initiatives, the Company’s share price has continued to
decline. The department store and specialty retail competitive
landscape continues to evolve rapidly and the Company will be
required to invest substantial capital and resources to remain
relevant to its customers and successfully compete.
- Significant cash obligations: The restructuring costs
associated with the closure of the Netherlands operations and the
sale of the Lord + Taylor operations to Le Tote, as well as ongoing
rent obligations of Lord + Taylor, Saks OFF 5TH, Home Outfitters
and other closed store locations, represent a significant use of
cash over the next 24 to 36 months. These and other working capital
obligations constrain the Company’s ability to return capital from
the sale of its European joint venture interests to
shareholders.
- Value of HBC’s real estate: In addition to its
independent financial and legal advisors, the Special Committee
engaged two internationally recognized real estate firms that
appraised HBC’s real estate portfolio of 79 properties on an as-is
and alternative use basis. The Special Committee also engaged an
independent planning and consulting firm that completed a planning
assessment to identify redevelopment opportunities in the
portfolio. Based on these in-depth analyses, the Company estimates
its pro rata share of its real estate portfolio is valued at $8.75
per diluted share,1 which reflects the combination of lower current
market rents, the increasing risks associated with the retail
industry, recent operating challenges, and a deterioration of
retail real estate market conditions.
- Assessment of real estate redevelopment potential: Any
potential redevelopment of the Company’s real estate portfolio
would require significant capital expenditures, involve material
execution risk and a long time horizon – over the course of
numerous years, and, for the majority of the Company’s assets,
require the consent and participation of the Company’s joint
venture partners. Additionally, based on the appraisals, the
Special Committee determined that redeveloping the Company’s real
estate would not result in creating additional value for
shareholders in the foreseeable future, compared to the certain
value provided by the transaction.
- Premium valuation and certainty when compared to other
alternatives: The payment to Minority Shareholders pursuant to
the arrangement will be all cash, which provides Minority
Shareholders with certainty of value and immediate liquidity. The
purchase price represents a 62% premium to the closing share price
on the last trading day prior to the announcement of the
Shareholder Group’s initial privatization proposal. The transaction
presents the most compelling value proposition, based on the
Special Committee’s review of any reasonable alternatives.
Independent Valuation and Fairness
Opinions
In connection with its review, the Special Committee retained TD
Securities Inc. (“TD Securities”) to prepare an independent, formal
valuation of the Company’s common shares in accordance with
applicable securities law. The Special Committee also engaged two
leading international real estate firms, CBRE, Inc. and Cushman
& Wakefield Inc., to independently value HBC's real estate
assets.
TD Securities has provided the Special Committee with a formal
valuation of the common shares of HBC which determined that, as of
October 20, 2019, and subject to the assumptions, limitations and
qualifications to be set out in TD Securities’ written valuation
report, the fair market value of the common shares of HBC ranged
between $10.00 and $12.25 per common share. TD Securities has also
provided an opinion to the Special Committee that, as of October
20, 2019, and subject to the assumptions, limitations and
qualifications to be set out in TD Securities’ written fairness
opinion, the consideration to be received by the common
shareholders of HBC other than the Shareholder Group is fair, from
a financial point of view, to such shareholders.
Each of J.P. Morgan and Centerview Partners LLC (“Centerview
Partners”) has provided the HBC Board of Directors with a fairness
opinion.
Transaction Details
The transaction is to be effected by way of a court-approved
plan of arrangement under the Canada Business Corporations Act (the
“CBCA”). The transaction will be funded from existing cash
resources of the Company and committed debt financing available to
the Company arranged by Bank of America, N.A., BofA Securities,
Inc., and Royal Bank of Canada. Completion of the transaction is
subject to a number of conditions, including court approval,
receipt of certain regulatory approvals and the approval of a
majority of the minority of the HBC shareholders (which excludes
the Shareholder Group and its affiliates) and approval of holders
of 75% of the shares voted at the special meeting of shareholders
held to approve the transaction. HBC expects to mail an information
circular for the special meeting in November 2019, and to hold the
special meeting in December 2019.
In connection with entering into the Arrangement Agreement, the
HBC Board of Directors (excluding conflicted directors, who did not
participate in deliberations) determined that, if the arrangement
was completed on the date of the Arrangement Agreement, the
repurchase of common shares pursuant to the arrangement would not
violate the provisions of the CBCA governing the repurchase of
shares. The HBC Board of Directors engaged an internationally
recognized financial advisory firm to provide certain financial
advice to assist the HBC Board of Directors in connection with such
determination. The Arrangement Agreement includes a closing
condition that the repurchase of common shares at closing will not
violate the provisions of the CBCA governing the repurchase of
common shares.
The Arrangement Agreement includes customary provisions relating
to non-solicitation, subject to customary "fiduciary out"
provisions that entitle HBC to consider and accept a superior
proposal if the Shareholder Group does not match the superior
proposal.
HBC is permitted to continue paying its regular quarterly cash
dividend consistent with its dividend policy and past practice
until closing.
The transaction is structured as a purchase for cancellation of
common shares by HBC. As a result, a shareholder will be deemed to
receive a dividend to the extent that the repurchase price exceeds
the “paid-up capital” (“PUC”) of the shareholder’s common shares.
The amount of this deemed dividend may differ significantly from
the shareholder’s economic gain. HBC’s current preliminary estimate
is that PUC is approximately $7.00 per common share. A shareholder
who holds their shares as capital property for Canadian income tax
purposes may also realize a capital gain (or a capital loss) to the
extent that the purchase price received, net of any deemed
dividend, exceeds (or is exceeded by) the aggregate of the adjusted
cost base of the shareholder’s common shares and any reasonable
costs of disposition.
The Canadian federal income tax rate applicable to the receipt
of a deemed dividend by a shareholder resident in Canada may be
higher than the rate that would apply to a capital gain.
Shareholders who are not residents of Canada generally will not be
subject to Canadian federal income tax on capital gains realized on
disposition of their common shares, but will be subject to Canadian
withholding tax at a rate of 25% (subject to reduction under an
applicable treaty) on any deemed dividend arising from the purchase
for cancellation. As a result, shareholders may prefer to sell
their common shares in the public markets with a settlement date
that is prior to the completion of the transaction. It is strongly
suggested that shareholders consult their own tax advisors and read
carefully the tax disclosure section of the information circular
relating to the transaction when it is available.
Further details regarding the terms and conditions of the
transaction are set out in the Arrangement Agreement, which will be
publicly filed by HBC under its profile at www.sedar.com.
Additional information regarding the terms of the Arrangement
Agreement, the background of the transaction and the independent
valuation and fairness opinions will be provided in the information
circular for the special meeting of shareholders, which will also
be filed at www.sedar.com.
Advisors
J.P. Morgan is acting as lead financial advisor and Centerview
Partners as special advisor to the Special Committee. Blake,
Cassels & Graydon LLP is acting as Canadian legal advisor to
the Special Committee and Paul, Weiss, Rifkind, Wharton &
Garrison is acting as U.S. legal advisor to the Special Committee.
TD Securities was engaged by the Special Committee as independent
valuator for the transaction.
BofA Merrill Lynch and RBC Capital Markets are acting as
financial advisors to the Shareholder Group. Stikeman Elliott LLP
is acting as Canadian legal advisor to the Shareholder Group and
Willkie Farr & Gallagher LLP is serving as U.S. legal advisor
to the Shareholder Group.
The Company’s public filings are available at www.sedar.com and
on the Investor Relations page of the Company’s website at
www.investor.hbc.com/investor-relations.
Forward-Looking Statements
Certain statements made in this news release are forward-looking
statements within the meaning of applicable securities laws,
including, but not limited to, statements with respect to the
rationale of the Special Committee and the Board of Directors for
entering into the Arrangement Agreement, the terms and conditions
of the Arrangement Agreement, the timing of various steps to be
completed in connection with the transaction, and other statements
that are not material facts. Often but not always, forward-looking
statements can be identified by the use of forward-looking
terminology such as “may”, “will”, “expect”, “believe”, “estimate”,
“plan”, “could”, “should”, “would”, “outlook”, “forecast”,
“anticipate”, “foresee”, “continue” or the negative of these terms
or variations of them or similar terminology.
Although HBC believes that the forward-looking statements in
this news release are based on information and assumptions that are
current, reasonable and complete, these statements are by their
nature subject to a number of factors that could cause actual
results to differ materially from management’s expectations and
plans as set forth in such forward-looking statements, including,
without limitation, the following factors, many of which are beyond
HBC’s control and the effects of which can be difficult to predict:
(a) the possibility that the transaction will not be completed on
the terms and conditions, or on the timing, currently contemplated,
and that it may not be completed at all, due to a failure to obtain
or satisfy, in a timely manner or otherwise, required shareholder
and regulatory approvals and other conditions of closing necessary
to complete the transaction or for other reasons; (b) risks related
to tax matters; (c) the possibility of adverse reactions or changes
in business relationships resulting from the announcement or
completion of the transaction; (d) risks relating to HBC’s ability
to retain and attract key personnel during the interim period; (e)
the possibility of litigation relating to the transaction; (g)
credit, market, currency, operational, real estate, liquidity and
funding risks generally and relating specifically to the
transaction, including changes in economic conditions, interest
rates or tax rates; (h) risks and uncertainties relating to
information management, technology, supply chain, product safety,
changes in law, competition, seasonality, commodity price and
business; and (i) other risks inherent to the Company’s business
and/or factors beyond its control which could have a material
adverse effect on the Company or the ability to consummate the
transaction.
HBC cautions that the foregoing list of important factors and
assumptions is not exhaustive and other factors could also
adversely affect its results. For more information on the risks,
uncertainties and assumptions that could cause HBC’s actual results
to differ from current expectations, please refer to the “Risk
Factors” section of HBC’s Annual Information Form dated May 3, 2019
as well as HBC’s other public filings, available at www.sedar.com
and at www.hbc.com.
The forward-looking statements contained in this news release
describe HBC’s expectations at the date of this news release and,
accordingly, are subject to change after such date. Except as may
be required by applicable Canadian securities laws, HBC does not
undertake any obligation to update or revise any forward-looking
statements contained in this news release, whether as a result of
new information, future events or otherwise. Readers are cautioned
not to place undue reliance on these forward-looking
statements.
Required Early Warning Report Information
HBC’s head office is located at 8925 Torbram Road, Brampton,
Ontario L6T 4G1.
The Shareholder Group and their affiliates and associates have
ownership and control over an aggregate of 82,889,382 Common Shares
(approx. 45% of the issued and outstanding common shares),
50,919,608 Series A preferred shares (100% of the issued and
outstanding Series A preferred shares) and assuming the conversion
of the outstanding Series A preferred shares into common shares as
of October 21, 2019, 139,384,830 common shares (approx. 57% of the
issued and outstanding common shares), all on an undiluted basis.
An investment fund managed by Abrams Capital Management, L.P. holds
1,196,035 common shares (approx. 0.65% of the issued and
outstanding common shares, and approx. 0.5% of the common shares,
assuming the conversion of the outstanding Series A preferred
shares into common shares as of October 21, 2019) that do not
currently form part of the rollover shares under the take-private
proposal.
Upon closing of the arrangement, the Shareholder Group intends
to cause the common shares to cease to be listed on the Toronto
Stock Exchange and to cause HBC to submit an application to cease
to be a reporting issuer under applicable Canadian securities laws
and to otherwise terminate HBC’s public reporting requirements.
Early warning reports will be filed by the Shareholder Group, as
applicable, with applicable Canadian securities regulatory
authorities. To obtain copies of the early warning report, please
contact Joele Frank, Wilkinson Brimmer Katcher at (212) 355-4449
(Contact: Matthew Sherman / Kelly Sullivan / Annabelle Rinehart /
Matthew Gross).
About HBC
HBC is a diversified retailer focused on driving the performance
of high-quality stores and their omni-channel platforms and
unlocking the value of real estate holdings. Founded in 1670, HBC
is the oldest company in North America. HBC’s portfolio today
includes formats ranging from luxury to premium department stores
to off price fashion shopping destinations, with more than 300
stores and about 40,000 employees around the world. HBC’s leading
businesses across North America include Saks Fifth Avenue, Hudson’s
Bay, Lord + Taylor, and Saks OFF 5TH.
HBC also has significant investments in joint ventures. It has
partnered with Simon Property Group Inc. in the HBS Joint Venture,
which owns properties in the United States. In Canada, it has
partnered with RioCan Real Estate Investment Trust in the
RioCan-HBC Joint Venture.
1 Based on 249 million total diluted shares outstanding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191021005309/en/
Investor Relations: Jennifer Bewley, 646-802-4631
jennifer.bewley@hbc.com
Media: Special Committee Sard Verbinnen & Co
Liz Zale/Paul Scarpetta, 212-687-8080 Meghan Gavigan,
415-618-8750
Company Andrew Blecher, 646-802-4030 press@hbc.com