HBC Plans $1.5B Sale of German Retail Holdings to JV Partner
- Jun 12, 2019
Less than a year after HBC merged its European business with SIGNA Retail Holdings and the companies combined two top German department store chains, Canadian-based HBC is selling its remaining stake in the German joint venture and divesting the related retail joint venture with SIGNA for $1.5 billion. Part of the net proceeds will be used to repay an outstanding $436 million loan, fortifying the company’s balance sheet.
HBC, which owns Saks Fifth Avenue, Hudson’s Bay, Lord & Taylor and Saks Off 5th had entered the German retail market in June 2015 with a huge $2.7 billion deal to acquire Galeria Holding, the parent company of Germany’s top department store chain, Kaufhof. When HBC merged its European operations with SIGNA in late November, it combined Kaufhof with SIGNA’s Karstadt retail chain. At the time, the plan was to create a stronger, better capitalized retailer that would be better positioned to succeed in the German market and create significant value for HBC shareholders.
As part of the latest transaction, expected to close this fall, HBC will assume ownership of the Netherlands retail business and release SIGNA from its 50.01 percent back-to-back guarantee of certain obligations of Hudson’s Bay Netherlands. HBC admitted that its Netherlands business has not performed to expectations, which is why the company intends to begin cost-saving initiatives, including store closures in the Netherlands.
CEO Helena Foulkes called the planned German transaction with SIGNA a milestone that would deliver important financial benefits. She stressed it would solidify HBC’s strategic focus on its North American operations, particularly Saks Fifth Avenue and Hudson’s Bay. Those retail chains are seen as the company’s greatest growth opportunities. In May, HBC said it was considering strategic alternatives for the Lord & Taylor operating business, including a possible sale or merger, as part of its strategy to focus on the strongest opportunities.
HBC privatization proposal
The announcement of the German exit plan, the latest in HBC’s attempts to keep the international company afloat as its stock price tumbles amid an increasingly rocky retail landscape, came the same day as HBC Chairman Richard Baker and other shareholders made an offer to take the company private. HBC’s board of directors formed a special committee of independent directors to review the proposal, which called for privatizing the company at a price of $9.45 in Canadian dollars per share (about $7.11), payable in cash. Baker is being joined by other investors, including Rhone Capital LLC, WeWork Property Advisors, Hanover Investments (Luxembourg) S.A. and Abrams Capital Management LP.
In 2017, WeWork and Rhone Capital teamed up to buy HBC’s flagship Lord & Taylor building on Fifth Avenue in Manhattan for $850 million to serve as WeWork’s new global headquarters. That deal, which gave Lord & Taylor the bottom floors for retail use, was also aimed at lowering HBC’s debt levels. Baker, Rhone Capital, WeWork Property Advisors, Hanover Investments (Luxembourg) S.A. and Abrams Capital Management own about 57 percent of the company’s outstanding common shares.
Bloomberg reported the privatization deal depends on the SIGNA deal closing in the fall. If the company does go private, Baker and others believe it will be easier for them to continue trying to make cost cuts and other changes without shareholder pressure.
Meanwhile, the special committee has hired Blake, Cassels & Graydon LLP as legal counsel and J.P. Morgan Securities as financial advisor to help it review the privatization proposal from the Baker group. A timetable for the review was not given.