Catalyst tops rival bid for HBC at over $2B

Investment firm accuses group led by retailer’s chairman of rigging process

One of Hudson’s Bay Co.’s largest shareholders has made an offer to acquire the retailer that values the company at more than $2 billion, topping a rival offer from a group led by the company’s chairman.

Catalyst Capital Group Inc., which holds a 17.5-per-cent stake in the owner of Saks Fifth Avenue, offered $11 a share in cash Wednesday for the rest of the company, according to a statement, confirming a Bloomberg report.

Its offer is fully financed and would be subject to customary due diligence, Catalyst said.

The proposal represents a 6.8-per-cent premium to the $10.30 a share that Hudson’s Bay chairman Richard Baker and his partners agreed to pay last month.

Hudson’s Bay acknowledged in a statement it has received the proposal from Catalyst and that no action was required by shareholders at this time. “The special committee of the HBC board of directors will review the offer in consultation with its independent financial and legal advisors to determine the course of action that is in the best interests of HBC and the minority shareholders,” it said.

Catalyst has also filed a complaint with the Ontario Securities Commission regarding the conduct of the Baker consortium and Hudson’s Bay, according to the statement. “Their actions are contrary to the public interest, including misrepresentations in circular and other potential securities law violations and a deeply flawed process,” Catalyst said.

Catalyst is urging fellow shareholders to vote against the Baker bid at a Dec. 17 meeting. The deal requires the majority of minority holders to support the transaction. The Canadian private equity firm said it believes its own deal could be voted on and closed by February.

The offer triggered a war of words between the competing parties.

“We believe Catalyst’s ‘offer’ is in fact a highly conditional, non-binding and non-executable proposal that is not supported by fully committed financing, and is intended to mislead HBC shareholders,” the Baker group said in a statement. The group said it is confident that shareholders will recognize the value of its offer.

Catalyst fired back through a spokesman that the process by which Baker’s group reached an agreement to acquire Hudson’s Bay was “rigged,” and stated that the special committee of the board can open the process to Catalyst and other bidders. It said it had “strong international banks and financial instructions” committed to supporting its efforts.

Catalyst, a Toronto-based investment firm run by Newton Glassman, has opposed the Baker bid, saying it undervalues the department store chain.

Catalyst is concerned about the value the company has recently ascribed to its real estate, which amounted to about $8.75 a share, the people said.

In particular, it’s questioning why the value of its flagship Saks Fifth Avenue store fell sharply in a recent appraisal, they said.

Hudson’s Bay rose as high as 14 per cent on the news.

The shares closed up 113 per cent to $9.83 in Toronto trading, giving the company a market value of about $1.8 billion. Prior to Catalyst making its offer, shares in Hudson’s Bay had fallen 2.6 per cent through Tuesday’s close of $8.83 a share, indicating uncertainty that the Baker group would win sufficient support from minority holders for its bid.

Winning support for its proposal might prove a challenge for Catalyst despite the higher terms.

Baker and his partners, who collectively own a 57-per-cent stake in the Toronto-based company, said when they originally proposed taking Hudson’s Bay private in June for $9.45 a share that they weren’t interested in alternative transactions. The group was subsequently forced to raise its bid after opposition mounted from minority holders, including Catalyst and activist investor Jonathan Litt’s Land & Buildings Investment Management.

Land & Buildings said in a statement it was encouraged by the rival bid and is interested in financially participating in this transaction should Catalyst move forward with it.

Catalyst said it will allow shareholders to participate in its offer as equity sponsors and that it supports other approaches that could deliver higher value for investors.

Baker said the terms of the deal it reached in October would be its “best and final offer.” The deal with Baker isn’t subject to any termination fees and has the unanimous support of Hudson’s Bay’s board, according to a regulatory filing.

We believe Catalyst’s ‘offer’ is in fact a highly conditional, non-binding and non-executable proposal.