Saks Fifth Avenue-owner Hudson’s Bay agreed to a buyout by a consortium of investors led by its executive chairman on Monday, in a deal that will allow the department store chain to navigate an increasingly challenging retail and real estate market out of the public light.
The investor group has offered to buy the shares of HBC it does not already own for C$10.30 apiece, a 62 per cent premium to the group’s shares before the Richard Baker-led consortium made its interest in acquiring the entirety of the company known.
The deal values the retailer’s equity at C$1.9bn. Hudson’s Bay carried about C$6.6bn of net debt as of August, according to Bloomberg data.
The buyout price falls near the low-end of a valuation a special committee at HBC had prepared by its advisers, underlining the continued struggles facing retail and department store companies.
HBC has worked to cut its debt burden and breathe new life into some of its brands, including luxury department store Saks, but acknowledged on Monday it would still need to invest “substantial capital” to compete with rivals.
Traditional retailers have lost footing to new direct-to-consumer entrants, while department store operators have watched as the makers of luxury goods do more of their business either in their own store fronts or through new ecommerce operators like Yoox Net-a-Porter.
Saks rival Barneys New York, which has long been a critical sales point for young and emerging fashion designers, filed for bankruptcy protection this August. Its chief rival Neiman Marcus earlier this year restructured its debts to avert a similar fate. Saks teamed with other bidders to buy the Barney’s brand name out of bankruptcy.
HBC said its work to restructure its business would “constrain” its ability to return capital to shareholders over the next three years, and its board believed the “transaction presents the most compelling value proposition, based on the special committee’s review of any reasonable alternatives”.
Shares of Toronto-listed HBC, which closed on Friday at C$9.45, rallied 6.2 per cent on Monday morning to $10.04, shy of the agreed price. Minority shareholders including Catalyst Capital Group had been critical of a previous offer from Mr Baker pitched at C$9.45 per share, saying it undervalued the company and its real estate interests.
“The special committee is confident that this transaction represents the best path forward for HBC and the minority shareholders,” said David Leith, who chairs the committee.