Hudson’s Bay strikes European Merger Agreement

By guest authors Anthony Shevlin and Suzanne Kapner from Wall Street Journal

Deal will join Germany’s two biggest Galeria Kaufhof and Karstadt department-store chains under one company

Hudson’s Bay Co. HBC -1.18% said Tuesday it has agreed to sell and combine parts of its European business with Signa Retail Holdings of Austria, in the latest in a series of sales by the Canadian retailer.

Under the deal, Hudson’s Bay will merge its European retail operations with the Austrian company’s German department-store chain Karstadt Warenhaus GmbH.

Signa will also acquire 50 % of Hudson’s Bay’s German real-estate assets, valued at EUR 3.25 billion (USD 3.77 billion), and form a 50-50 joint venture to manage them.

Hudson’s Bay will receive net proceeds of EUR 411 million from the transactions.

“This transaction unlocks a tremendous amount of value for shareholders,” said Hudson’s Bay Chief Executive Officer Helena Foulkes, during an interview.

The deal will join Germany’s two biggest department-store chains—Karstadt and Galeria Kaufhof, which Hudson’s Bay bought for USD 2.7 billion in 2015—under one company with combined annual revenue of more than EUR 5 billion.

Hudson’s Bay has been under pressure from activist investor Land & Buildings Investment Management LLC to sell assets and make better use of its real estate against increasing losses.

“Hudson’s Bay’s planned sale of its European business at a value of CAD 8.71 (USD 6.62) per share confirms our thesis that the company’s real-estate value is likely more than double that of its current share price of CAD 10.78,” said Land & Buildings founder Jon Litt.

Litt urged Hudson’s Bay to eventually sell its stake in the European joint venture once synergies are realized and said it should “remain vigilant in monetizing assets as long as the company’s shares continue to trade at a material discount to net asset value.”

The company, which earlier this year rejected a EUR 3 billion offer from Signa for all of Kaufhof, has been paring back its operations, which consist of Saks Fifth Avenue, Lord & Taylor and Canada’s Hudson’s Bay chain.

The company has struggled as department stores lose ground to online retailers, fast-fashion sellers and off-price chains.

Ms. Foulkes, who joined Hudson’s Bay as chief executive in February, has said there are no “sacred cows” when it comes to fixing the business.

She reiterated that sentiment in an interview on Tuesday, saying “everything is on the table.”

But she also said that deal making will likely play a smaller role going forward. “What I have to focus on next is driving the operating results of the North American retail business,” particularly Lord & Taylor and Saks Off Fifth, which have struggled, she said.

Hudson’s Bay recently agreed to sell e-commerce fashion seller Gilt Groupe to Rue La La; is closing as many as 10 Lord & Taylor stores; and will no longer occupy its flagship store on Manhattan’s Fifth Avenue, having sold it last year to WeWork Cos.

The moves mark a reversal for Chairman Richard Baker, who built up Hudson’s Bay through a series of acquisitions and in the past few years tried unsuccessfully to buy Macy’s Inc. and Neiman Marcus Group.

Shares in Hudson’s Bay closed down 1.9 % at 10.58 Canadian dollars on the Toronto Stock Exchange on September 11, 2018.