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Dec 5, 2019

Hudson's Bay confident of approval for chairman's buyout bid

HBC rejects Catalyst Capital's takeover offer

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Hudson’s Bay Co. is optimistic shareholders will endorse a take-private offer from its chairman when it comes to a vote this month, according to the chairman of a special committee formed by the struggling retailer.

“We are confident in the end that we will get the vote because it’s a rational decision to make,” said David Leith, the head of the committee reviewing the chairman’s bid as well as a competing offer from one of Hudson’s Bay’s biggest shareholders.

The Dec. 17 shareholder vote pits Chairman Richard Baker, whose bid was backed by the board in October, against private-equity firm Catalyst Capital Group Inc., which made a higher offer that was rejected by Leith’s committee as “not reasonably capable of being consummated.” Catalyst wants to block the Baker deal, which requires support of the majority of minority shareholders.

Leith, who spoke publicly for the first time since the committee was formed, said he’s concerned the complexity of the transaction and the barrage of statements between the rival bidders has made it hard for retail investors to make up their mind.

The board has supported the Baker offer to turn the owner of Saks Fifth Avenue around outside the glare of public markets as retailers try to find relevance in the era of e-commerce. Fixes will take a while and be expensive, said Leith, a former investment banker at Canadian Imperial Bank of Commerce.

“This was not a circumstance where we came up and said ‘we want to sell Hudson’s Bay and we want the best offer,’” he said. “This was the circumstance where an insider said ‘we are committed to the long term of Hudson’s Bay.’”

Catalyst Offer

Catalyst’s proposal of $11 a share represents a 6.8 per cent premium to the $10.30 a share that Baker and his partners agreed to pay in October. The special committee rejected the Catalyst bid in part because Baker and his allies, who own about 57 per cent of shares, have indicated they won’t sell. HBC declined for a second day Wednesday, closing at $9.24 in Toronto. That’s well below both offer prices, suggesting investors are concerned the bids may fail.

“The controlling shareholders never put the company up for sale, nor did we put the company up for sale,” Leith said in a phone interview Wednesday.

The Baker group’s bid to win over the bulk of minority holders could prove challenging with Catalyst holding 17.5 per cent of the common stock. Only the common shares are subject to the vote by minority holders, according to a regulatory filing.

As of the record date, there were roughly 184 million common shares outstanding, of which the Baker group held about 83.6 million, or 45.3 per cent, the filing shows. That leaves roughly 100 million shares that will be counted, of which Catalyst owns about 32.3 per cent.

Catalyst, the distressed debt firm run by Newton Glassman, has appealed to the Ontario Securities Commission to halt the Baker offer, which they say was made with “inadequate and inaccurate” disclosure to shareholders. The regulator has agreed to hold a hearing on the matter Thursday in Toronto.