Shareholders in HBC propose to take the company private

A group that currently controls 57 per cent of the shares in Hudson's Bay Company is proposing to buy up the rest of them and take the retailer private.

Takeover group includes executive chairman, but also backing of office leasing firm WeWork

A group of HBC shareholders is trying to take the company private, paying shareholders an almost 50 per cent premium for their shares. (Nathan Denette/Canadian Press)

A group that currently controls 57 per cent of the shares in Hudson's Bay Company is proposing to buy up the rest of them and take the retailer private.

The shareholder group is offering $9.45 per share in cash for the company.

On Friday, the shares closed at $6.37, so the deal is a 48 per cent premium to what they're currently worth and values the company at roughly $1.7 billion.

Shares in the retailer jumped up 45 per cent to $9.25 a share when the TSX opened on Monday morning.

The would-be takeover group includes the retailer's executive chairman, Richard Baker, but also has the backing of WeWork, which struck a deal with HBC in 2017 to buy some of the retailer's real estate.

"While we continue to believe in HBC's long-term potential, it has become clear that the significant challenges, risks and uncertainties facing HBC in the rapidly evolving retail environment are best addressed in a private market setting," Baker said.

"Our all-cash proposal would provide HBC's public shareholders the ability to realize immediate and certain value for their shares at a substantial premium ... We believe that improving HBC's performance will require significant time and patient long-term capital that is better suited in a private company context without the emphasis on short-term results and returns."

Barry Schwartz, chief investment officer at Baskin Wealth Management in Toronto, said in an interview that the move could lead to the end of the company as a retailer, because the people acquiring it are most likely interested in the company's vast real estate holdings.

"The value is there, it's just there's no value there in being a retailer any further," he said. If that's the plan, "getting out of the public spotlight is the right step at the moment."

The offer is conditional on HBC selling its remaining stake in a German joint venture, something HBC confirmed in a news release Monday that it would do.

HBC says it has formed a special committee to review the deal.

In theory, the deal would give HBC the cash and focus to home in on its core retail brands, including the Bay and Saks Fifth Avenue. Earlier this year, HBC announced the closure of its Home Outfitters chain in order to focus elsewhere. 

Bloomberg Intelligence retail analyst Poonam Goyal said Monday "the company has struggled to draw better results at the namesake and Off Fifth stores for some time now," and added the privatization plan "would enable it to more easily make radical changes to improve the underperforming business."

"A turnaround for Hudson's Bay still demands more time as new leadership ... needs to correct execution missteps," she said.

TD retail analyst Brian Morrison agrees it will take time to turn the company around, but going private may be the way to make it happen.

In a note on Monday, he said Baker's comment is "consistent with our view that in order to surface the attractive value of its real estate portfolio within the share price, a meaningful improvement would be required in its retail operations that would require time."

Prior to Monday's gain, HBC shares have lost about two-thirds of their value since the company had an IPO in 2012 at $17 a share. As recently as 2015, the shares traded as high as $25 apiece, but that was before the company was hit by the same problem that has hit other retailers: the growth of online shopping.

"We are in a retail apocalypse," Barry Schwartz of Baskin Wealth Management said. Online sales at companies such as Amazon are growing by more than 25 per cent per year "and that's coming from traditional retailers," he said.

Broad-based department stores are among the hardest hit sectors, which is why he doubts the retail arm of the business will stick around for long even if the new owners succeed in monetizing the real estate assets.

"Stick a fork in it," he said, "it's done."