From The Financial Times
Canadian retailer Hudson’s Bay Company has agreed to buy Saks for $2.4bn in an all cash deal, ending months of speculation on Wall Street surrounding the sale of the upmarket US department store. Under the terms of the deal, HBC will pay $16 a share plus debt, about 4.5 per cent higher than Saks’s $15.31 closing price on Friday. Including debt, the transaction is valued at around $2.9bn.
HBC plans to finance the purchase with $1bn of new equity, $1.9bn of senior secured loans and $400m of senior unsecured notes and available cash on hand.
The transaction brings together the namesake Hudson’s Bay, high-end department store chain Lord & Taylor, as well as the Saks Fifth Avenue brands, creating a company that will operate 320 stores in North America.
Under the terms of the agreement, there is a 40-day go shop period, during which Saks may seek bids from other suitors.
Richard Baker, chief executive of HBC, said the deal was as much about the acquisition of premier property assets – including Saks’ iconic Fifth Avenue flagship store in Manhattan – as retail.
“This acquisition will increase our growth potential both in the US and Canada, generate significant efficiencies of scale, add to our powerful real estate portfolio and deliver substantial value to our shareholders,” he said.
HBC plans to keep Saks as a separate unit headquartered in New York and introduce the Saks brand in Canada through the internet and other formats. Steven I. Sadove, the chief executive of Saks, added: “We are excited about what this opportunity and being part of a much larger enterprise can mean for the future of the Saks Fifth Avenue brand.”
Saks, which has a market capitalisation of $2.3bn, has seen a spike in its share price of almost 46 per cent in the first half of 2013 thanks to growing speculation of an impending buyout. Shares rose 3.5 per cent in premarket trading in New York on Monday. Meanwhile, HBC increased 2.2 per cent to C$16.85 in Toronto trading.
The deal comes less than two months after private equity firm KKR was said to be considering a bid for Saks, while rival department store chain Neiman Marcus publicly rebuffed talk of a merger between the two luxury retailers.
Talks surrounding the latter were said to be scotched after it became apparent that despite the clear logic of any department store consolidation, overlap in store sites and closure costs would have made any deal too costly.
The Qatar Investment Authority, a sovereign wealth fund which holds stakes in numerous luxury brands including Harrods, Valentino and Tiffany & Co., was also said to be interested in a possible bid.
The Ontario Teachers’ Pension Plan, one of Canada’s largest pension funds, will buy $500m of the new equity, while West Face Capital will invest $250m.
Saks’ sales have yet to recover from their pre-recession high. The retailer posted revenue of $3.15bn last year, short of the $3.28bn it posted in the year that ended in early 2008. Mr Sadove has been closing the chain’s underperforming branches. It now operates 41 namesake stores, compared with 54 in early 2007.
Saks was advised by Goldman Sachs, Morgan Stanley and Guggenheim Securities while Bank of America Merrill Lynch and RBC Capital Markets worked for HBC.