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Dec 6, 2019

New York investor files suit against Hudson's Bay, chairman

HBC rejects Catalyst Capital's takeover offer

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A minority shareholder of Hudson’s Bay Co. has filed a lawsuit against the retailer and its chairman Richard Baker, accusing them of suppressing the value of its shares to help facilitate Baker’s bid to take the company private.

Ortelius Advisors, which said it owns a 0.5-per-cent stake in Hudson’s Bay, filed a statement of claim in the Ontario Superior Court of Justice Thursday. The suit seeks unspecified damages and to block the deal, among other measures.

Baker’s duties as chairman were “inexorably compromised” once he raised the idea of taking the company private in 2017, Peter DeSorcy, managing member of Ortelius, a New York-based investment firm, said in an emailed statement.

“His interests were no longer aligned with minority investors in maximizing shareholder value, but in minimizing the purchase price for the continuing shareholders,” DeSorcy alleged in the statement.

The suit is the latest salvo in the battle for the struggling Toronto-based retailer, which has also drawn a takeover offer from private-equity firm Catalyst Capital Group Inc. Baker has said he wants to turn the business around outside the glare of public markets.

Representatives for Baker and HBC were not immediately available for comment.

The suit alleges the company has coupled positive news with measures to suppress stock gains and dramatically lowered the value it ascribes to its real estate, including its flagship Saks Fifth Avenue property in New York.

Competing Offer

Baker and his partners, which together own a 57-per-cent stake in Hudson’s Bay, agreed to purchase the Canadian retailer on June 10 for roughly $1.9 billion. The group has said it would not sell its stake to any other buyers, which DeSorcy said prevents minority shareholders from realizing the fair value of their shares.

“He knew that the existence of this consortium would discourage competing bids from arising, handcuff any special committee by effectively preventing it from being capable of ever accepting any superior proposal and guarantee that no competing bid could ever proceed,” DeSorcy said in the email.

Ortelius pointed to the proposed takeover of the company by Catalyst last month for $11, a 70-cent-per-share premium to the Baker group’s bid. Hudson’s Bay rejected that offer, citing the Baker group’s unwillingness to sell to another buyer as part of its rationale.

“In short, the special committee has confirmed that no bid can be a superior proposal given the insiders’ opposition to selling their shares,” the suit states. “Accordingly, there is no mechanism for the minority shareholders to receive fair-market value.”

Real Estate

Ortelius said in the lawsuit it started to build its stake in Hudson’s Bay in 2017, in part because of the value the company ascribed to its real estate. Those estimates were drastically cut earlier this year when the company approved the Baker group’s bid.

Ortelius accuses Hudson’s Bay of making several misrepresentations and omissions in filings on the deal, including why it ascribed a value of $2.16 billion to its flagship Saks Fifth Avenue store, roughly $2 billion less than it was previously valued at.

Hudson’s Bay has said the decline in value was due to the woes in retail and sliding rents in a high-profile Manhattan shopping district.

Ortelius also alleges in the lawsuit that the sale of its European division in June for US$1.5 billion should have doubled the value of Hudson’s Bay’s shares were it not followed five minutes later by news of the Baker group’s original offer to buy the company for $9.45 a share. Ortelius said that limited the gains to 40 per cent.

DeSorcy said the actions were “tantamount to a take-under.”

“His offer to privatize Hudson’s Bay at an alleged ‘substantial premium’ was fundamentally a ‘substantial discount,’” he said.