Catalyst says it has enough votes to block privatization bid for HBC

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Private equity fund Catalyst Capital Group Inc. claims to have gathered enough votes to block the planned $1.1-billion buyout of Hudson’s Bay Co. and is pushing HBC’s board of directors to put the retailer up for sale.

Toronto-based Catalyst announced late Thursday that investors holding a 28.2-per-cent stake in HBC plan to oppose a bid to take the company private from a group led by HBC executive chairman Richard Baker. HBC owns real estate and more than 300 department stores under the Saks Fifth Avenue and Hudson’s Bay banners.

Mr. Baker’s buyout offer was approved last week by the HBC board after it was sweetened to $10.30 a share, and needs the support of the majority of minority investors. Mr. Baker’s group, which includes several private equity funds, controls 57 per cent of HBC’s shares, so a majority of the remaining 43 per cent is any shareholder group voting more than 21.5 per cent of the shares. Mr. Baker’s group and HBC could not be reached for comment late Thursday.

HBC shares closed Thursday at $9.98 on the Toronto Stock Exchange.

Catalyst directly controls 17.5 per cent of HBC, much of which it acquired in recent weeks for $10.11 a share. The fund, which manages approximately $4-billion for institutional clients, did not disclose the other investors that plan to vote against the buyout offer. In a press release on Thursday, Catalyst partner Gabriel de Alba said: “We call on the board to either demand that Richard Baker release other members of the Baker group to consider other options or allow the Baker agreement to expire and run a true sale process.”

“Catalyst is aware of a number of strategic investors that are interested in participating in a process that is open and not constructed to benefit an insider," Mr. de Alba said. "Catalyst itself is also prepared to be a participant in the process and work toward an offer to acquire the company at terms financially superior to the insider issuer bid.”

Mr. Baker teamed up with Rhone Capital LLC, WeWork Property Advisors, Hanover Investments (Luxembourg) SA and Abrams Capital Management LP to bid for HBC. One adviser to Mr. Baker, who asked to remain anonymous because he was not authorized to speak for the company, pointed out that Catalyst previously made an offer for a minority stake in HBC at $10.11 a share, and is now telling them not to tender to a bid for $10.30.

The HBC buyout is structured as a “purchase for cancellation of common shares,” which means Mr. Baker’s group would buy all the HBC shares they don’t own with the company’s own cash and new loans. The approach has negative tax implications for some investors, including hedge funds. In a press release last week, HBC said shareholders "may prefer to sell their common shares in the public markets with a settlement date that is prior to the completion of the transaction.”

HBC and other department store chains face headwinds as customers embrace online shopping, and shares in rival retailers such as Macy’s Inc. have declined sharply since Mr. Baker first proposed buying HBC in August.

In Thursday’s press release, Mr. de Alba opened the door to both buying more shares in HBC or exiting his position. “Depending on market conditions and other factors," he said, "Catalyst may in the future increase or decrease its control or direction over securities of the company through open market transactions, private agreements or otherwise.”

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