The Special Committee of the Board of Directors of Hudson’s Bay
Company (TSX:HBC) (“HBC” or the “Company”) today provided
additional information regarding the background to the European
real estate transactions (the “SIGNA Transactions”) that led to the
development of the privatization transaction contemplated by the
Arrangement Agreement between HBC and Rupert Acquisition LLC dated
October 20, 2019 (the “Arrangement Agreement”).
Contrary to the baseless allegations being made by The Catalyst
Capital Group Inc. (“Catalyst”), the Special Committee of the
Company’s Board of Directors conducted a rigorous and thorough
process.
- The Special Committee, comprised entirely of independent
directors, supervised the negotiation of the SIGNA Transactions,
and recommended their approval to the full Board.
- Mr. Baker received permission to explore the possibility of
developing a take-private proposal with other large, long-term
shareholders of the Company, and to share information on a
confidential basis as required in order to do so. The Special
Committee believed that, in the context of HBC’s shareholder
composition, declining stock price and the ongoing challenges and
risks facing the Company, a proposal that would provide liquidity
to minority shareholders could be in the best interests of the
Company, and that the Special Committee should have the ability to
consider and, if thought advisable, recommend such a proposal to
shareholders. The Special Committee knew that any such transaction
it might recommend would be subject to minority shareholder
approval and other protections under applicable corporate and
securities laws, affording minority shareholders the ultimate
choice as to whether to accept or reject such a proposal.
- The Special Committee, with the assistance of its independent
financial and legal advisors, conducted an extensive review of the
Company’s operations and real estate assets, and of alternatives
available to the Company. The Special Committee retained TD
Securities Inc. to prepare an independent valuation of the
Company’s common shares, and engaged independent real estate
appraisal and planning firms to appraise HBC’s entire real estate
portfolio of 79 properties and complete a planning assessment of 59
properties to identify redevelopment opportunities in the
portfolio.
- The Special Committee obtained three fairness opinions in
respect of the proposed transaction.
The attached appendix provides additional details regarding the
events leading up to the announcement of the Initial Proposal. The
Special Committee is providing this information to provide
shareholders with additional context, and to counter the
misinformation and misleading statements being put forward by
Catalyst. Shareholders can access additional information about the
Arrangement, including the Management Information Circular, by
visiting www.HBCGoPrivate.com.
The Special Committee and the Board (excluding conflicted
directors) recommend that Minority Shareholders vote in favour of
the transaction in advance of the proxy voting deadline of 10:00
a.m. ET on Friday, December 13, 2019 or at the special meeting of
shareholders on Tuesday, December 17, 2019 at 10:00 a.m. ET.
Shareholders who have questions or need assistance voting their
proxy should contact Kingsdale Advisors, HBC’s proxy solicitation
agent, by telephone toll-free at 1-866-581-0512, collect at
1-416-867-2272 or via email at contactus@kingsdaleadvisors.com.
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 nearly 250 stores
and approximately 30,000 employees around the world. HBC’s leading
businesses across North America include Saks Fifth Avenue, Hudson’s
Bay, and Saks OFF 5TH. HBC also has significant investments in real
estate 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.
Forward-Looking Statements
Certain statements made in this news release are forward-looking
statements within the meaning of applicable securities laws. 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, proposed, 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; (f)
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; (g) risks and uncertainties relating to
information management, technology, supply chain, product safety,
changes in law, competition, seasonality, commodity price and
business; and (h) 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” sections of HBC’s Annual Information Form dated May 3,
2019 and Management Information Circular dated November 14, 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.
APPENDIX
The section in the Company’s management information circular
dated November 14, 2019 (the “Circular”) entitled “The Arrangement
– Background to the Arrangement – The SIGNA Transaction and the
Initial Going Private Transaction” is restated below to include
additional information regarding the period preceding the
announcement by the Continuing Shareholders of the Initial
Proposal. Capitalized terms used and not otherwise defined herein
have the meanings ascribed to them in the Circular.
The SIGNA Transaction and the Initial Going Private Proposal
In connection with the Company’s strategic objective to simplify
its retail strategy and unlock the value of its real estate, the
Company completed the merger of the retail operations of HBC Europe
and SIGNA’s Karstadt Warenhaus GmbH in the fourth quarter of 2018.
After completing the transaction, given the deteriorating state of
the European retail business, the need for significant incremental
capital contributions to fund material operating losses in the
European business, and the continued need to focus on core
operations and strengthen the Company’s balance sheet, the Company
concluded it was important to pursue a complete exit from the
European retail market and fully monetize its European real
estate.
In and around late February 2019, representatives of HBC,
including Mr. Baker and Mr. Putnam, commenced exploratory
discussions with representatives of SIGNA about a potential sale to
SIGNA of HBC’s remaining 50% interest in its European real estate
joint venture and 49.99% interest in its European retail joint
venture (the “SIGNA Transactions”).
Shortly after the commencement of exploratory discussions with
SIGNA, Mr. Baker considered the viability of HBC using proceeds of
the potential SIGNA Transactions to complete a buyback of HBC
shares or fund other liquidity opportunities for shareholders. Mr.
Baker also commenced exploratory discussions with the other
Continuing Shareholders as to whether proceeds from the potential
SIGNA Transactions could provide a portion of the financing for a
potential privatization transaction involving HBC and thereby a
liquidity opportunity for other HBC shareholders. Such exploratory
discussions included, among other things, what levels of debt
financing and leverage would be appropriate, and what other sources
of financing could be available on acceptable terms. It was
determined that without proceeds from the potential SIGNA
Transactions, it was highly unlikely that the debt capital markets
would be independently available to support a privatization
transaction on terms that would be sustainable for the Company. Mr.
Baker commenced such discussions with representatives of each of
Fabric Luxembourg Holdings S.a.r.l. (“Fabric”), Hanover Investments
(Luxembourg) S.A. (“Hanover”) and Abrams Capital Management L.P.
(“Abrams”) on or about March 5, 2019.
Mr. Baker, together with certain individuals and entities
affiliated or acting jointly with him and L&T B (Cayman) Inc.,
and Hanover have been shareholders of HBC since prior to its
initial public offering in 2012. Abrams has been a shareholder of
HBC since the end of 2015 and Fabric has been a shareholder since
December 2017. Given their large respective investments in HBC,
their respective long investment horizons, and the continuing
challenges HBC faces, the Continuing Shareholders engaged from time
to time in discussions regarding the business.
On or about March 25, 2019 (prior to a regularly scheduled Board
meeting on March 27, 2019), and with discussions of the potential
SIGNA Transactions still fluid, Mr. Baker and Mr. Putnam informed
Mr. Leith, HBC’s lead independent director, about Mr. Baker’s
desire to evaluate a potential privatization transaction together
with the other Continuing Shareholders, all of which was contingent
on proceeding with the SIGNA Transactions which, as of such date,
were still being negotiated without any certainty of outcome. Mr.
Leith consented to Mr. Baker exploring such a transaction and
sharing certain limited financial information with the Continuing
Shareholders on a confidential basis. Mr. Leith also provided
consent to the use by Mr. Baker of the Company’s historical
transaction counsel in connection with that initial evaluation, and
was advised that RBC and BofA Securities would be financial
advisors to Mr. Baker.
On March 27, 2019, the Board established the Special Committee,
at that time consisting of Messrs. Leith (Chair), Pommen, Rotman
and Rubel, each an independent director, to supervise the review
and evaluation of the Company’s strategies and options with respect
to (i) the Company’s Lord + Taylor business unit and (ii) its
European real estate joint venture and European retail joint
venture and real estate assets, which were the subject of the
potential SIGNA Transactions. The Special Committee’s mandate
included oversight and supervision of the review and evaluation of
the various possible strategic alternatives that were available to
the Company and oversight of the Company’s activities in
furtherance thereof. In fulfilling its mandate, the Special
Committee evaluated such transactions independently from any
potential privatization proposal. While the Special Committee was
aware that any privatization proposal, if received, would be
conditional on the SIGNA Transactions, the SIGNA Transactions were
not conditional on a privatization transaction proceeding.
On April 10, 2019, the Special Committee met to review the
background of the original transaction establishing the European
real estate joint venture and the European retail joint venture and
to consider the pro forma scenarios of divesture of the European
real estate joint venture and the European retail joint venture.
The Special Committee received details of the proposed SIGNA
Transactions. The Special Committee was advised of the proposed
aggregate purchase price for the Company’s 50% stake in the
European real estate joint venture.
On April 23, 2019, the Special Committee met to receive an
overview of options regarding Lord + Taylor and an update on
ongoing preliminary discussions between the Company and SIGNA
regarding the proposed SIGNA Transactions.
On April 26, 2019, HBC and SIGNA reached alignment with respect
to high level principal terms of the proposed SIGNA Transactions
subject to, among other things, respective internal approvals.
On April 27, 2019, Mr. Baker re-iterated his interest to the
Board in evaluating the possibility of a privatization transaction
with the other Continuing Shareholders; however, no details of
pricing or structuring of the proposed transaction were provided at
that time, other than that any proposal would be contingent on the
completion of the SIGNA Transactions. Also on April 27, 2019,
Blakes was retained to act for the Special Committee in connection
with a privatization proposal should one be received. J.P. Morgan
was also contacted to potentially act for the Special Committee in
connection with a privatization proposal should one be
received.
On April 30, 2019, the Special Committee and Stephanie Coyles,
an independent director who had joined the Board on March 27, 2019,
met with Blakes to discuss, among other things, potential
modifications to the Special Committee’s mandate to address a
potential privatization proposal as well as the potential
appointment of financial advisors and an independent valuator in
connection with any such proposal. The Special Committee reviewed a
number of criteria it considered to be important in selecting
financial advisors and the extent to which potential financial
advisors satisfied such criteria. The Special Committee then
discussed the Company’s experience with J.P. Morgan since 2017, in
particular in connection with the Company’s review of its European
joint venture and real estate assets. In light of J.P. Morgan’s
knowledge of the sector and the Company, the Special Committee
determined to appoint J.P Morgan as financial advisor to the
Special Committee. The Special Committee discussed the possible
appointment of Centerview as a special advisor, but deferred a
determination as to whether to engage Centerview at that time. The
Special Committee also considered the criteria it considered to be
important in selecting an independent valuator and discussed the
possibility of appointing TD Securities as independent valuator, in
particular having regard to TD Securities’ experience with MI
61-101 valuations and strong real estate expertise. The Special
Committee also discussed the potential timing of the announcement
of a privatization proposal in relation to the announcement of the
SIGNA Transactions, including the advantages and disadvantages of
the privatization proposal being announced at the same time as the
announcement of the SIGNA Transactions or at a different time.
Also on April 30, 2019, the Special Committee separately met to
receive an update on the Company’s discussions with SIGNA regarding
the proposed SIGNA Transactions.
On May 6, 2019, the Company announced it was pursuing strategic
alternatives for its Lord + Taylor operating business, including a
possible sale or merger, as part of its strategy to focus on its
core businesses, Saks Fifth Avenue and Hudson’s Bay.
On May 10, 2019, the Special Committee met to receive an update
on the status of negotiations on the SIGNA Transactions and on the
actual and forecasted performance of the European retail joint
venture.
On May 13, 2019, the Special Committee met to receive an update
on the status of the Lord + Taylor strategic review. The Special
Committee also received information with regard to residual
liabilities that were expected to remain after the consummation of
the proposed SIGNA Transactions.
On May 24, 2019, the Special Committee met to review additional
analysis on the projections and valuations of the European assets
and to receive an update on the status of the proposed SIGNA
Transactions.
On May 31, 2019, in response to an indication from Mr. Baker
that he was continuing to consider making a privatization proposal
with other large shareholders, including Fabric, the Special
Committee and Ms. Coyles met with Blakes and J.P. Morgan. It was
noted that Mr. Baker had advised that any privatization proposal
would be subject to the closing of the SIGNA Transactions, and the
expected timing of the announcements of the SIGNA Transactions and
any privatization proposal was discussed. There was also a
discussion of the duties of directors and the requirements of MI
61-101 applicable to a potential privatization transaction,
and the establishment of guidelines for directors, officers and
management in view of the potential involvement of certain
directors and officers of the Company in a privatization proposal.
The Special Committee considered further the potential engagement
of TD Securities as valuator and discussed TD Securities’ expertise
and experience and the rationale for having selected TD Securities
as valuator in 2017. The Special Committee also discussed the
potential engagement of Centerview as a special advisor. After
further consideration by the Special Committee and having regard to
Centerview’s experience in advising on M&A transactions in the
retail sector, Centerview was subsequently appointed as a special
advisor to the Special Committee on June 11, 2019.
On June 4, 2019, the Special Committee met to receive an update
on the status of the proposed SIGNA Transactions. On the same day,
Mr. Putnam shared with members of the Special Committee a draft of
the Continuing Shareholders’ proposal letter and proposed press
release (to follow the Company’s announcement of the SIGNA
Transactions), in each case without pricing of the Initial
Proposal.
On June 9, 2019, in view of the possibility of a privatization
proposal, the Board approved a revised mandate for the Special
Committee that authorized the Special Committee to, among other
things, (i) review and evaluate any proposal made to effect a going
private transaction, including whether any such transaction would
be in the best interests of the Company, (ii) consider any
alternative transactions available to the Company, including
whether any such alternative transactions would be in the best
interests of the Company, (iii) consider whether maintaining the
status quo would be preferable to implementing a transaction and in
the best interests of the Company, (iv) supervise or engage in
related negotiations or discussions on behalf of the Company with
respect to any potential transaction, and (v) make recommendations
to the Board respecting any potential transaction. The Board also
appointed Ms. Coyles as a member of the Special Committee and,
following consideration by the Special Committee, the Board waived
the standstill provisions in Fabric’s governance agreement to allow
it to be part of the Continuing Shareholders making the Initial
Proposal on the basis that receiving a proposal for a take-private
transaction was in the best interests of the Company in the
circumstances.
Also on June 9, 2019, the Board approved the entry by the
Company into the SIGNA Transactions. The Special Committee received
financial advice from J.P. Morgan regarding, among other things,
indicative values of the European retail and real estate joint
ventures, potential ongoing liabilities related to retaining the
Netherlands operations and the impact of the SIGNA Transactions on
the pro forma HBC business and financial position. The Special
Committee considered the benefits, risks and opportunities of the
SIGNA Transactions for HBC on a stand-alone basis.
Messrs. Baker, Robert Baker, Mack, Gross, Langman and Neibart
recused themselves from each of the approvals made on June 9, 2019
on the basis that a potential privatization proposal would be
conditional on the closing of the SIGNA Transactions.
On June 10, 2019, the Company entered into definitive agreements
to (i) sell the Company’s remaining stake in its European real
estate joint venture and divest its related retail joint venture to
its partner, SIGNA, along with assumption of certain obligations
for a total consideration of $1.5 billion (€1 billion) and (ii)
assume ownership of the Company’s Netherlands retail business and
release SIGNA from its guarantee of certain obligations of Hudson’s
Bay Netherlands.
Also on June 10, 2019, the Continuing Shareholders submitted to
the Special Committee and publicly announced their unsolicited
proposal to privatize the Company pursuant to a transaction in
which the Company would purchase the Common Shares not owned by the
Continuing Shareholders at a price of $9.45 per Common Share (the
“Initial Proposal”). The Continuing Shareholders also
informed the Special Committee that none of the Continuing
Shareholders were, in their capacity as Shareholders, interested at
the time in an alternative transaction which would result in the
sale of their interest in HBC or the acquisition by a third party
of HBC or any of its material assets, and that they were not
supportive of any alternative distribution to shareholders of the
proceeds from the SIGNA Transactions.
Following receipt of the Initial Proposal on June 10, 2019, the
Company announced that the Board had established a Special
Committee that would review the Initial Proposal and that the
Special Committee had appointed J.P. Morgan as financial advisor
and Blakes as legal counsel.
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version on businesswire.com: https://www.businesswire.com/news/home/20191206005524/en/
Investor Relations: Jennifer Bewley, 646-802-4631
jennifer.bewley@hbc.com
Media: Special Committee Sard Verbinnen & Co. Liz
Zale and Paul Scarpetta, 212-687-8080 Meghan Gavigan, 415-618-8750
HBC-SVC@sardverb.com
Company Andrew Blecher, 646-802-4030 press@hbc.com