The takeover battle for Hudson’s Bay Co. is set to heat up ahead of a key regulatory hearing this week, after an influential proxy adviser urged investors to reject a $1.1-billion offer led by the retailer’s executive chairman, Richard Baker.
Institutional Shareholder Services Inc., which advises big stockholders on how to vote in corporate elections, late Friday recommended a “no” vote on the Baker group’s offer of $10.30 a share for HBC. ISS cited "significant defects” in HBC’s sale process that prevented investors from getting a higher bid.
Catalyst Capital Group Inc., the Toronto private equity fund led by financier Newton Glassman, has made an alternative proposal, saying it is willing to pay $11 per share for the company.
A shareholder vote on the offer by the Baker group, which owns 57 per cent of HBC’s stock, is set for Dec. 17. A special committee of the board of directors has recommended the Baker bid, which must be approved by a majority of the other shareholders.
The two sides in the takeover battle are scheduled to go head to head at the Ontario Securities Commission beginning Wednesday, with Catalyst seeking to have the Baker group’s offer blocked, or the shareholder vote postponed. Hearings are scheduled for Wednesday through Friday, but the agenda could change.
The main problem with the Baker group offer, ISS said, is that the special committee of HBC directors negated the potential for superior offers when it ruled that no competing bid – even a higher one – could be successful as long as Mr. Baker’s group refused to sell.
“It appears that the special committee handcuffed itself by recommending an agreement that defines a superior proposal as something that could never happen,” said ISS. The special committee has urged shareholders to accept the Baker group offer and rejected Catalyst’s proposal last week, saying it had no reasonable chance of being consummated because the majority shareholders would not sell.
Catalyst owns a third of the shares not owned by the Baker group, and it has at least a few allies: Late last week, Ortelius Advisors LP, a New York-based hedge fund that owns 0.5 per cent of HBC, sued the company and Mr. Baker’s group, seeking an injunction against the deal.
In a statement Saturday, Gabriel de Alba, managing director of Catalyst, said, “ISS has clearly called out the HBC board and the insider group, led by executive chairman Richard Baker, for their egregious pattern of conflicts, misrepresentations and self-serving game … this process was designed to transfer value from minority shareholders to Richard Baker and his selected insiders.”
The Baker group did not respond to the ISS report or to the Catalyst comments by Sunday afternoon. HBC investors also expect a recommendation from rival proxy advisory firm Glass, Lewis & Co. sometime this week.
Late Friday, after ISS published its report, the special committee released additional background information to the transaction. In a statement, it said that when Mr. Baker worked to assemble his buyout group, he operated with the permission of the committee, which believed a potential offer that cashed out minority shareholders could be in their best interest, given the company’s “declining stock price and [its] ongoing challenges and risks.”
Amid all this, the company is slated to release results Tuesday. Analysts expect it to post a substantial loss.
If the news is worse than expected it could help Mr. Baker’s case, as his argument is that the company is struggling, expected to post considerable losses in the near term, and would best recover if it weren’t in the glare of the public markets, releasing potentially disappointing numbers every quarter.
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David Milstead
Jeffrey Jones