HBC special committee’s independence questioned in hearing on takeover bid
TORONTO Catalyst Capital Group Inc. spent part of Thursday’s hearing at the Ontario Securities Commission grilling a Hudson’s Bay director about why the department store chain turned down Catalyst’s recent takeover offer.
David Leith, head of the special committee tasked by HBC’s board to review take-private offers, appeared at the Ontario Securities Commission on Thursday as HBC’s witness in the case. In the two-day hearing, Catalyst is seeking an order to block or stall a takeover deal led by HBC chairman Richard Baker and his group of shareholders.
Midway through his questioning on Thursday, Catalyst lawyer Brett Harrison wanted Leith to describe the special committee’s decision not to support Catalyst’s bid last month, even though the private equity firm’s offer of $11 per share was better than the $10.30 on offer from the Baker group.
The special committee has maintained that, since the Baker group shareholders refuse to sell their 57-per-cent stake, any competing offer is a non-starter.
“So it was out of your hands as to whether Catalyst could prepare a superior proposal?” Harrison asked, suggesting that it was actually the Baker group’s decision to deny Catalyst, not that of the special committee.
“I think I disagree with the comment, ‘Out of your hands,’” Leith said. “Being bound by the terms of a legal agreement (with the Baker group) … should (not) be referred to as, ‘Out of your hands.’”
Harrison interjected: “You’re hands are bound.”
“It’s a matter of nomenclature, I would say,” Leith replied. “Fair enough,” Harrison said. In its closing arguments on Thursday, Catalyst argued that HBC didn’t apprise shareholders of crucial details about the deal until a late-night press release last Friday.
In that release, HBC updated its official account of how the deal came together with new information about how the special committee waived a standstill provision to allow shareholder Fabric Luxembourg Holdings S.a.r.l. to join the Baker group’s bid.
In closing remarks Thursday, Catalyst lawyer Adam Chisholm said HBC released the extra information late Friday after the proxy advisory Institutional Shareholder Services revealed it first, in a report hours earlier recommending that minority shareholders vote against the Baker offer next week.
“The form of special committee used in this case is actually in some ways worse than no special committee,” Chisholm said, “because shareholders can be misled into thinking there’s a layer of independence to the process.”
Chisholm also noted that as chairman, Baker was involved in a deal earlier this year to sell its remaining stake in its European real estate joint venture to Signa Holding for $1.5 billion.
Two news releases, announcing the Signa sale and Baker’s initial take-private proposal, were released within minutes of each other on June 10.
Catalyst said HBC didn’t disclose, until recently, that Leith and the special committee were aware that Baker was working on the Signa sale and considering a take-private offer that would involve using the proceeds of that sale.
“They’re able to complete the initial proposal without putting a single penny up towards their offer,” he said. “It’s based on the Signa sale and debt financing. And they’re able to do that by receiving information from the company about a transaction that Mr. Baker was working on.”
But vice-chairman Grant Vingoe, part of the Ontario Securities Commission’s three-person panel, questioned Chisholm on the Signa deal.
“Is it really a valid complaint to say that the two press releases came out within minutes on the same day? What harm flows from that?” Vingoe asked. “The interrelationship may not be a problem because the privatization was in flux and Signa was going forward regardless.”
The hearing continues Friday morning, with Catalyst expected to finish its closing remarks.