HBC, activist investor reach agreement on new equity

TORONTO — Hudson’s Bay Co. says it has reached an agreement with an activist investor to drop its opposition to an investment in the retailer by private equity firm Rhone Capital.

Land & Buildings Investment Management LLC had applied last month to have the Ontario Securities Commission to review a Toronto Stock Exchange decision to conditionally approve the investment.

Under the deal, HBC said Friday if it needs to raise money by issuing equity that will trigger the one-year price protection feature of the preferred shares being acquired by Rhone, it will be done through a rights offering to all of its shareholders on a pro rata basis, as opposed to a private placement.

Land & Buildings has also agreed to a standstill for a period extending through HBC’s 2018 annual meeting.

Rhone Capital has agreed to invest about $632-million in HBC in the form of eight-year mandatory convertible preferred shares.

The investment was announced as part of a deal that will see HBC to sell its Lord & Taylor Fifth Avenue building to WeWork Property Advisors, a joint venture between WeWork and Rhone, for nearly $1.1 billion, and pursue a strategic alliance with WeWork regarding future real estate transactions.

Rhone will initially hold a 21.8 per cent voting and equity interest in the company on a partially diluted basis and that could grow to 30 per cent if the preferred shares are held to their eight-year maturity.

HBC and Land & Buildings have been in a war of words in recent weeks, accusing one another of misleading shareholders regarding the building’s sale and the related Rhone investment.

Land & Buildings has previously urged the retailer to consider a bid for its German operations by Signa Holding and criticized the Rhone investment deal.

HBC now expects to close the Rhone investment next week.

HBC executive chairman Richard Baker said the company will continue to review its real estate portfolio with a view to maximizing shareholder value and the ongoing operations and business of HBC.

“We look forward to ongoing engagement with, and constructive input from, Land & Buildings and our other shareholders as we pursue additional opportunities,” he said.

Land & Buildings said it’s “pleased and encouraged that HBC’s management and board continues to take steps to monetize its highly valuable assets.”