* Deal worth $2.9 billion with debt assumption
* Saks to operate separately within HBC
* Baker says to spin off small piece into REIT but own the
By Phil Wahba and Solarina Ho
NEW YORK/TORONTO, July 29 Richard Baker is
doubling down on his attempt to revive big-name department
stores with a $2.4 billion bid to buy Saks Inc, bringing
the New York retailer into Canada and under the same roof as
Lord & Taylor and Canada's Hudson's Bay.
Baker's Hudson's Bay Co is offering $16 per share
to Saks, a 30 percent premium over levels in May, right before
media reports that the luxury U.S. retailer was up for sale. The
deal is worth $2.9 billion in cash, including Saks' debt.
"We have this tremendous opportunity in Canada to roll out
Saks," Hudson's Bay Chief Executive Baker said in an interview.
"Department stores still make a lot of money."
Baker plans to open up to seven Saks stores in Canada plus
maybe two dozen Off Fifth outlet stores. He is also eyeing
closing one more Saks Fifth Avenue store in the United States,
where the retailer has already shuttered several.
The deal is subject to a 40-day "go shop" period where Saks
can seek other offers. It will create a North American operation
with annual sales of $7.2 billion, based on 2012 figures.
That compares to $12.1 billion for Nordstrom Inc,
which opens its first Canadian store next year, and $27.7
billion for Macy's Inc, who also owns Bloomingdale's.
Shares of Saks closed 4.2 percent higher at $15.95, just
below the offer price, indicating a rival bid was unlikely.
HBC shares rose 5.8 percent to end at C$17.45, down from an
intraday high of C$17.81, as markets focused on the likelihood
that the expanded company will spin off its real estate into a
trust, on the lines of a stock-boosting decision from U.S.
department store chain Dillard's Inc in 2011.
Baker said HBC's plan was to create a Real Estate Invesmtent
Trust, or REIT, but only selling some of it to the public and
keeping the rest. "Real estate values dramatically improve in
very well run operating companies," he said.
Analysts and retailers say one draw is that Canada, where
retail sales hit a record high in May, is still viewed as
under-served, despite the arrival of a growing number of foreign
Canadian prices are generally higher than in the United
States, and discounts tend to be less aggressive, prompting many
shoppers to seek deals in towns just beyond the U.S. border.
HBC expects C$100 million ($97.3 million) a year in savings
through consolidating information technology systems and more
efficient clearance for the existing chains.
Saks is best known for the $1 billion Fifth Avenue flagship
store in Manhattan that alone generates one fifth of its annual
sales. It will operate separately within HBC with its own
merchandising, marketing and operations teams.
"The Fifth Avenue store is a gem and everything else is
second to that," said independent retail analyst Walter Loeb.
"Many of the stores are not as productive."
Saks, which closed some U.S. stores after the 2008
recession, currently has 41 full-service stores and 67 outlets
worldwide. It will compete in Canada with retailers like the
Holt Renfrew chain, as well as, Nordstrom.
The deal is the latest by Baker, who with his father Robert
is part of a group that owns National Realty & Development Corp,
a private developer of U.S. retail and shopping centers.
In 2006, the two led a group that bought the mid-tier U.S.
department store, Lord & Taylor, via NRDC Equity Partners. Two
years later, the firm bought Hudson's Bay, North America's
oldest corporation, which has roots going back to the
17th-century Canadian fur trade.
In a 2011 deal hailed as a masterstroke, Baker oversaw the
sale of 220 leases from Hudson's Bay, low-end Zellers stores to
Target Corp, giving the discount retailer locations for
its Canadian expansion and yielding $1.8 billion for the
"I wouldn't bet against Richard Baker. He seems to have a
magic touch when it comes to real estate," said Barry Schwartz,
portfolio manager at Baskin Financial Services in Toronto.
COMPETING WITH RIVALS
Saks, for its part, has struggled to keep pace with high-end
rivals Nordstrom and Neiman Marcus Group Inc and it
slashed prices and margins during the recession, training
shoppers to expect discounts. It took three years before it
could start selling at closer to full price.
Saks' two largest shareholders are Mexican billionaire
Carlos Slim and Italian luxury businessman Diego Della Valle,
who own a combined 30.5 percent of the stock. Della Valle,
chairman of shoemaker Tod's, is set to pocket around
$136 million on the deal.
Hudson's Bay said it will finance the deal with about $1
billion in new equity, $1.9 billion in senior secured loans and
$400 million of senior unsecured notes, as well as cash on hand.
The retailers expect the deal will close by year-end.
Bank of America Merrill Lynch was Hudson's Bay lead
financial adviser, with RBC Capital Markets providing
additional services. Stikeman Elliott LLP and Willkie Farr &
Gallagher LLP were the Canadian retailer's legal counsel.
On Saks' side, Goldman Sachs, Morgan Stanley
and Guggenheim Securities were financial advisers and Wachtell,
Lipton, Rosen & Katz provided legal counsel.