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Report on Business Baker’s $1-billion privatization bid ‘inadequate,’ HBC special committee says

A contentious, $1-billion privatization offer for Hudson’s Bay Co. from its executive chairman is too low, the special board committee examining the bid said on Friday in an unusual assessment weeks before its formal opinion on the proposal is due.

The five-director committee said it had engaged real estate appraisers and planning consultants to help evaluate the offer from executive chairman Richard Baker, whose group controls 57 per cent of HBC shares. The shareholder group announced the bid in early June.

“Based on initial analysis completed to date by its financial [adviser] and other factors, the special committee has communicated to the shareholder group that the price of $9.45 per common share offered in the shareholder group proposal is inadequate,” the committee said in a statement on Friday.

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The statement, which comes weeks before it is due to issue its final fairness determination in September, backs up criticism by some of HBC’s minority shareholders. They have complained the offer does not reflect the value of the chain’s real estate holdings in Canada and the United States.

It could force New York-based Mr. Baker and his allies to rethink their plans for taking Canada’s oldest corporation out of public markets – at least at the current bid price. If the board’s special committee recommends that shareholders reject the offer, it would likely stymie the group, given the staunch opposition among the large minority holders.

For the bid to be successful, a majority of the shares not held by Mr. Baker’s group must be voted in favour.

His shareholder group said it had no immediate comment on the special committee’s statement. Mr. Baker’s partners are Rhone Capital LLC, office-sharing company WeWork Property Advisors, Hanover Investments (Luxembourg) SA and Abrams Capital Management LP.

The independent directors’ statement adds a new wrinkle to an already acrimonious process. Catalyst Capital Group Inc., Land & Buildings Investment Management LLC and Sandpiper Group are among dissidents calling the offer inadequate. Land & Buildings founder Jonathan Litt has called it “woefully” so.

Toronto-based Catalyst has launched a bid for about 8 per cent of HBC’s outstanding shares in a move to control more of the minority shares in opposition to Mr. Baker’s offer. It said it was encouraged by the committee’s view of the Baker group’s bid.

“This clear rejection by the special committee of the Baker group's undervalued offer represents a first, but important, step toward reinforcing the broader market's understanding of the value of HBC,” it said in a statement.

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Some minority shareholders have issued their own valuations putting the value of the real estate, much of which is in prime urban locations, around $30 a share, although the company would be able to realize such value only by selling it. There are also calls for the company to hold a formal auction.

Under Mr. Baker, HBC has generated healthy proceeds from asset sales, including its Lord & Taylor flagship building in Manhattan, N.Y., for $1.1-billion.

But the retail operations at its stores, including Hudson’s Bay and Saks Fifth Avenue, have struggled against a backdrop of changing consumer behaviour and intense competition from online retailers such as Amazon.com Inc. and discount stores.

Meanwhile, the special committee said it was not in a position to issue a formal assessment of Catalyst’s offer of $10.11 a share, but it noted that it does not provide the legal protections of a full-blown takeover bid. Mr. Baker has called it “coercive,” as it could deprive investors of the opportunity to cash out for the price he is offering if it dooms his bid.

However, Catalyst, led by financier Newton Glassman, argued it is giving all shareholders the opportunity to tender to its bid. It said it supports the rights of minority holders and is well-suited to be a long-term holder of HBC shares.

The committee said it intends to meet with various shareholders next week.

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