August 25, 2017 / 7:01 PM / 4 months ago

Exclusive: Hudson's Bay to review options after activist pressure - sources

(Reuters) - Hudson’s Bay Co, owner of the Saks Fifth Avenue and Lord & Taylor retail chains, plans to review its options, including going private, following pressure from an activist shareholder, people familiar with the matter said.

The Canadian retailer’s largest shareholder and executive chairman Richard Baker is looking for a new strategy after unsuccessful attempts this year to merge Hudson’s Bay with U.S. department store operators Macy’s Inc and Neiman Marcus.

Hudson’s Bay, which is already working with an investment bank to defend itself against activist hedge fund Land and Buildings, has been seeking to hire another financial adviser to carry out the review, the sources said this week.

The review will consider all available options, from the possibility of the company going private to potential sales of retail assets and real estate, the sources said, cautioning that no transaction is certain.

The sources asked not to be identified because the deliberations are confidential. Hudson’s Bay declined to comment.

Hudson’s Bay shares ended trading on Friday up 14.2 percent at C$11.45 on the news, giving the company a market capitalization of around C$2.1 billion ($1.7 billion). The company also had outstanding loans and borrowings totaling C$4.2 billion as of the end of April.

Hudson’s Bay shares have lost close to 40 percent of their value in the last 12 months, as sales declined and consumers continued their shift away from department stores to online and discount retailers.

Land and Buildings urged the company in June to consider going private and to monetize its real estate holdings. The hedge fund’s founder Jonathan Litt has called Hudson’s Bay “a real estate company, full stop.”

The 347-year-old company dates back to the fur-trading era and once claimed more than 40 percent of what is now Canada and a substantial chunk of what became Minnesota and North Dakota.

Today, it owns more than $10 billion in real estate assets in North America and Europe, with the flagship Saks store on Fifth Avenue in New York alone valued at around $3.7 billion.

Land and Buildings escalated the pressure last month, saying it would seek to nominate directors to serve on the company’s board unless the company took major steps to increase its stock price, including potentially selling Saks Fifth Avenue or exiting its business in Europe.

Litt has also indicated he is open to Hudson’s Bay developing its own plan.

    Hudson’s Bay is not the first North American department store to consider going private this year. A group of Nordstrom Inc family members is also exploring ways to take the eponymous U.S. department store operator private.

    Hudson’s Bay has been successful over the years in attracting major property investors, such as RioCan Real Estate Investment Trust (REI_u.TO), in joint ventures that have allowed it to place more debt on its retail assets and seek to boost returns from rent and the value of the real estate.

    However, the strategy has reached its limits as the company’s sales have failed to keep pace with its ambitions for expansion. In addition to Saks Fifth Avenue in 2013, its acquisitions include Germany’s Galeria Kaufhof in 2015 and online shop Gilt Groupe last year.

    After reporting a wider-than-expected first-quarter loss in June, the company said it would cut about 2,000 jobs across North America.

    Hudson’s Bay has reported a fall in consolidated same-store sales for five consecutive quarters, and industry analysts and consultants expect another decline when the company reports second-quarter earnings next month.

    A bid by Hudson’s Bay for Macy’s was spurned earlier this year, as Hudson’s Bay struggled to put together the financing needed, Reuters reported at the time. Hudson’s Bay also explored an acquisition of debt-laden Neiman Marcus, which it subsequently abandoned.

    Reporting by Carl O'Donnell and Lauren Hirsch in New York; Additional reporting by Greg Roumeliotis and Michael Flaherty in New York and John Tilak and Solarina Ho in Toronto; Editing by Meredith Mazzilli, Tom Brown and Diane Craft

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