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Hudson’s Bay Company Agrees to Be Taken Private at $10.30 per Share
Definitive Agreement with
Transaction Delivers Substantial 62% Premium, Provides Immediate and Certain Cash Value to HBC Minority Shareholders
Under the terms of the Arrangement Agreement, the common shares of HBC not held by the
The Special Committee of independent directors was established by the HBC Board of Directors (the “Board”) to consider the initial privatization proposal, as well as other alternatives available to the Company, including the status quo, and, if it deemed advisable, to negotiate with the
The conclusions and recommendations of the Special Committee and the Board have been based on a number of factors, including the following:
- Compelling value proposition for Minority Shareholders in deteriorating retail environment: The cash premium transaction provides Minority Shareholders with immediate and certain value that is expected to be higher than that realizable in the foreseeable future. Continued industry headwinds and the deterioration in operating performance have negatively affected the Company’s financial results. Despite the execution of several strategic initiatives, the Company’s share price has continued to decline. The department store and specialty retail competitive landscape continues to evolve rapidly and the Company will be required to invest substantial capital and resources to remain relevant to its customers and successfully compete.
Significant cash obligations: The restructuring costs associated with the closure of
the Netherlandsoperations and the sale of the Lord + Taylor operations to Le Tote, as well as ongoing rent obligations of Lord + Taylor, Saks OFF 5TH, Home Outfitters and other closed store locations, represent a significant use of cash over the next 24 to 36 months. These and other working capital obligations constrain the Company’s ability to return capital from the sale of its European joint venture interests to shareholders.
Value of HBC’s real estate: In addition to its independent financial and legal advisors, the Special Committee engaged two internationally recognized real estate firms that appraised HBC’s real estate portfolio of 79 properties on an as-is and alternative use basis. The Special Committee also engaged an independent planning and consulting firm that completed a planning assessment to identify redevelopment opportunities in the portfolio. Based on these in-depth analyses, the Company estimates its pro rata share of its real estate portfolio is valued at
$8.75per diluted share,1 which reflects the combination of lower current market rents, the increasing risks associated with the retail industry, recent operating challenges, and a deterioration of retail real estate market conditions.
- Assessment of real estate redevelopment potential: Any potential redevelopment of the Company’s real estate portfolio would require significant capital expenditures, involve material execution risk and a long time horizon – over the course of numerous years, and, for the majority of the Company’s assets, require the consent and participation of the Company’s joint venture partners. Additionally, based on the appraisals, the Special Committee determined that redeveloping the Company’s real estate would not result in creating additional value for shareholders in the foreseeable future, compared to the certain value provided by the transaction.
- Premium valuation and certainty when compared to other alternatives: The payment to Minority Shareholders pursuant to the arrangement will be all cash, which provides Minority Shareholders with certainty of value and immediate liquidity. The purchase price represents a 62% premium to the closing share price on the last trading day prior to the announcement of the Shareholder Group’s initial privatization proposal. The transaction presents the most compelling value proposition, based on the Special Committee’s review of any reasonable alternatives.
Independent Valuation and Fairness Opinions
In connection with its review, the Special Committee retained
The transaction is to be effected by way of a court-approved plan of arrangement under the Canada Business Corporations Act (the “CBCA”). The transaction will be funded from existing cash resources of the Company and committed debt financing available to the Company arranged by
In connection with entering into the Arrangement Agreement, the HBC Board of Directors (excluding conflicted directors, who did not participate in deliberations) determined that, if the arrangement was completed on the date of the Arrangement Agreement, the repurchase of common shares pursuant to the arrangement would not violate the provisions of the CBCA governing the repurchase of shares. The HBC Board of Directors engaged an internationally recognized financial advisory firm to provide certain financial advice to assist the HBC Board of Directors in connection with such determination. The Arrangement Agreement includes a closing condition that the repurchase of common shares at closing will not violate the provisions of the CBCA governing the repurchase of common shares.
The Arrangement Agreement includes customary provisions relating to non-solicitation, subject to customary "fiduciary out" provisions that entitle HBC to consider and accept a superior proposal if the
HBC is permitted to continue paying its regular quarterly cash dividend consistent with its dividend policy and past practice until closing.
The transaction is structured as a purchase for cancellation of common shares by HBC. As a result, a shareholder will be deemed to receive a dividend to the extent that the repurchase price exceeds the “paid-up capital” (“PUC”) of the shareholder’s common shares. The amount of this deemed dividend may differ significantly from the shareholder’s economic gain. HBC’s current preliminary estimate is that PUC is approximately
The Canadian federal income tax rate applicable to the receipt of a deemed dividend by a shareholder resident in
Further details regarding the terms and conditions of the transaction are set out in the Arrangement Agreement, which will be publicly filed by HBC under its profile at www.sedar.com. Additional information regarding the terms of the Arrangement Agreement, the background of the transaction and the independent valuation and fairness opinions will be provided in the information circular for the special meeting of shareholders, which will also be filed at www.sedar.com.
J.P. Morgan is acting as lead financial advisor and
Certain statements made in this news release are forward-looking statements within the meaning of applicable securities laws, including, but not limited to, statements with respect to the rationale of the Special Committee and the Board of Directors for entering into the Arrangement Agreement, the terms and conditions of the Arrangement Agreement, the timing of various steps to be completed in connection with the transaction, and other statements that are not material facts. 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, currently contemplated, 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; (g) 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; (h) risks and uncertainties relating to information management, technology, supply chain, product safety, changes in law, competition, seasonality, commodity price and business; and (i) 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” section of HBC’s Annual Information Form dated
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.
Required Early Warning Report Information
HBC’s head office is located at
Upon closing of the arrangement, the
Early warning reports will be filed by the
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
HBC also has significant investments in joint ventures. It has partnered with
1 Based on 249 million total diluted shares outstanding.
Jennifer Bewley, 646-802-4631
Sard Verbinnen & Co
Liz Zale/Paul Scarpetta, 212-687-8080
Meghan Gavigan, 415-618-8750
Andrew Blecher, 646-802-4030