Zucker bid more for Bay last year

Offer 75 cents above latest bid rejected by Hudson’s Bay Suitor plans to dispose of Simpson Tower, keep firm intact

South Carolina industrialist Jerry Zucker was prepared to pay $ 15.50 a share for Hudson’s Bay Co. last summer, 75 cents more a share than he is now offering, he discloses for the first time in a formal bid document sent to HBC shareholders.

If he succeeds in taking over the company, the document also says, Zucker would sell the Simpson Tower on Queen St. W., next to the Bay’s flagship store in downtown Toronto, and reinvest the money in the retail business. The company, Canada’s oldest, would no longer be publicly traded and Zucker would replace the board of directors with his own people. However, he would keep the Hudson’s Bay name and its basic operations intact, the document says. The document, mailed to shareholders yesterday, also reveals that after HBC refused to consider his friendly takeover bid in the summer of 2004, Zucker sought a seat on Hudson’s Bay’s board in order to influence the company’s strategic direction. But again, he was rebuffed. The two events, combined with HBC’s recent decision to find a buyer for its profitable credit card division, are what led up to Zucker’s decision to make a hostile takeover bid for Canada’s oldest company, the 62- page document says. Zucker is offering $14.75 a share, or $ 1 billion, through a subsidiary, Maple Leaf Heritage Investments Acquisition Corp., as previously announced on Oct. 28.

Hudson’s Bay had little comment on the offer yesterday.

“ The board and management are reviewing the unsolicited offer within the context of maximizing shareholder value,” Hudson’s Bay said in a brief statement. The disclosures had little impact on HBC’s shares, which fell 6 cents to $15.25 yesterday. They have been trading above the bid price on speculation HBC may attract a rival offer.

Zucker said he believes Hudson’s Bay, which operates the Bay, Zellers, Home Outfitters and Designer Depot, can be run more successfully. He goes on to outline plans that he says are already in the works anyway. Things like closing a “ limited” number of underperforming stores while renovating and enlarging more Zellers stores to make them more like the big- box retailers against which they compete. He would not initiate a major restructuring or make “ material” changes in the 70,000 member workforce, the document said. Rather, he would focus on improving basic store operations to improve the customer experience by ensuring advertised specials are in stock and employees are helpful. He would also invest in new technology to improve checkout, scanner, supply chain and logistics using some of the proceeds from the sale of the Simpson Tower. Analysts believe the prime piece of real estate could fetch up to $90 million.

In the stores, he would do more “ co- branding,” which involves bringing a complementary retailer or brand into a Bay or Zellers store to attract more customers. The department store segment in Canada has been losing market share partly to new formats, including big- box retailers, discounters and specialty chains, the document notes. As well, department stores have suffered from poor pricing strategies, capital investment and inventory control, the document says. Zucker believes he can “strengthen HBC’s competitiveness going forward and enhance HBC’s contribution to the Canadian economy while preserving and leveraging the value of HBC’s name, history and reputation.” He says he is generally supportive of the retailer’s five- year plan, which includes modernizing stores, selling more appliances and furniture and developing new businesses to capture a share of the growing “offprice” category, such as its Designer Depot stores. But he believes HBC could be doing more to regain lost market share. The document also provides more insight into the timing of events since Zucker first disclosed in December, 2003 that he owned 10 per cent of HBC shares, making him its single largest stakeholder. A month later, in January, 2004, Zucker initiated meetings with HBC management to discuss his intentions and hear the company’s plans. By August, 2004, he had raised his stake to 18 per cent. At that point, he proposed in writing a friendly takeover, which would include retaining key management personnel.

Hudson’s Bay’s chief executive officer George Heller responded in writing on behalf of the directors and management saying the company was not for sale.