Board of historic retail chain accepts U.S. investor’s sweetened offer
Hollie Shaw
Sun
Hudson‘s Bay Co. accepted a sweetened offer from U.S. investor Jerry Zucker on Thursday in a deal that isn’t expected to affect Vancouver’s 2010 Olympic Games sponsorship agreement with Canada’s oldest company.
The deal ends months of speculation about the fate of the struggling and historic department store operator.
The retailer’s board accepted an offer of $15.25 a share from Zucker’s Maple Leaf Heritage Investments Acquisition Corp. — 50 cents above an offer the board rejected as inadequate in November, but below an unofficial $15.50 all-cash offer Zucker extended to management in August 2004.
Hudson‘s Bay signed a sponsorship deal in March worth more than $100 million in cash and value-in-kind contributions. with the Vancouver Olympic Organizing committee
“[Zucker] in their bid for HBC expressed support for the Vanoc marketing agreement,” Renee Smith-Valade, Vanoc’s vice-president of communications, said Thursday. Smith-Valade said Zucker’s group also expressed support of HBC’s strong sales of Olympic-related material.
News of the $1.7-billion offer, which dropped some of the original bid’s conditions in addition to its higher purchase price, comes three days before the expiry of Zucker’s bid and stemmed a plunge in HBC’s stock price.
Hudson‘s Bay — one of the world’s first modern joint-stock companies — closed at $13.58 on Wednesday as market watchers became uncertain about whether management would reach a deal with any bidder.
On Thursday the stock finished the day at $15.03.
The offer sends the 335-year-old retailing institution, which played a critical role in the exploration and development of Canada, into the hands of a foreigner.
HBC helped pioneer the modern department-store format in the early 1900 and introduced the Bay brand to Canadians in 1964, but its point blankets, first created by a weaver in England in 1780, have become a well-known Canadian symbol.
Zucker’s motives have been questioned repeatedly throughout the process, both by analysts who contended he put out an offer in hopes of drawing out a higher bid from elsewhere and from within the walls of HBC.
“After considering several offers for the company, [the board] has unanimously endorsed and is recommending that shareholders tender to the amended offer,” Yves Fortier, a governor of Hudson’s Bay Co., said in a statement.
The offer, which requires a minimum tender of 66.6 per cent of shares, will be mailed by Feb. 10 and expires on Feb. 24.
Despite speculation to the contrary, Zucker has insisted he does not want to break the company — whose trading area stretched from Labrador to the Pacific Ocean in 1821 — into pieces.
Robert Johnston, vice-president of Zucker’s InterTech Group, said the financier wants to accelerate the conversion of Zellers outlets into a more productive big-box format to compete with Wal-Mart Stores Inc.
The company will also improve customer service and supply-chain management through the use of technology, he said.
Although Zucker was not pleased about the prospect of selling the retailer’s credit card operation — HBC management said last year it would consider offers to buy it — Johnston now says “the process will probably continue towards a sale.”
He said the company did not plan any major layoffs beyond the 800 announced last fall, and had made no decisions about whether current management will stay.
Given the retailer’s track record — five years of flat sales and losses in seven of the last eight fiscal quarters — a management shuffle is likely, but observers have mixed opinions about whether HBC can be turned around as it is now.
Comprised of 98 Bay stores, 294 Zellers stores, 56 Home Outfitters stores, seven Designer Depot outlets — a Winners-like store — and 118 Fields, HBC has been ceding market share in its core retail operations for the last decade to more nimble mass merchants such as Wal-Mart.
“Certainly the Bay that exists a year from now will not be the one that is here today,” said retail consultant Anthony Stokan of Anthony Russell and Associates, who predicts Zucker will likely sell 30-40 of the Bay’s urban locations to Federated Department Stores Inc., which could replace the stores with its Macy’s format.
“This does present an extraordinary point of entry for several American retailers to come into Canada.”
Consumers are less likely now to shop inside multi-floor department stores, he said, but a smaller chain could still perform well in Canada under the correct banner.
The picture hasn’t been any better at Zellers since Wal-Mart steam-rolled into Canada 11 years ago and built itself into the country’s biggest retailer behind grocery giant Loblaw Cos.
Management had tried to rework the struggling chain by closing poorly performing stores and introducing exclusive brands, emulating a strategy employed by successful U.S. counterpart Target Corp., but the strategies have yet to yield significant results.
George Hartman, retailing analyst at Dundee Securities, believes Zucker will consider numerous offers from interested real estate and retail parties once the deal closes in February. “I suspect [Zucker’s] original plans have been changed by the results of the company in the past year,” he said. “I also suspect [Zucker] has no shortage of calls coming in.”
Johnston said Maple Leaf had received numerous “unsolicited expressions of interest” from industry players wanting to acquire parts of HBC but the company has no intention to divide the retailer now.
Zucker, who owns 18.8 per cent of HBC’s shares, began buying stock in mid-2003 when it was trading at about $9.
Frustrated with the retailer’s dwindling operating performance and management’s refusal to give him a seat on the board, and irked about the prospect of HBC selling off its credit card operation, Zucker went public with his intention to make a hostile bid in late October.
He had been interested in buying the company for more than a year, but management had rejected his advances.