Trading in Hudson’s Bay (TSX:HBC) stock was temporarily suspended Wednesday morning, as news of the impending sale of the company’s iconic brand Lord & Taylor was announced.
In a deal reportedly worth $100 million, HBC will sell the Lord & Taylor brand, its 38 brick-and-mortar locations, intellectual property, e-commerce business, and all inventory to Le Tote, Inc.
Le Tote is a popular fashion subscription service company in which members rent clothing and accessories for a flat monthly fee. Le Tote wasted no time in promoting the acquisition, with the Lord & Taylor brand appearing on Le Tote’s website simultaneously with the announcement. HBC will retain a 25% stake in Le Tote and receive two seats on the company’s board.
This deal comes as HBC is trying to drum up cash to support its remaining brands. In a joint statement with Le Tote’s CEO, HBC CEO Helena Foulkes said, “This transaction builds upon our previous bold actions, further enabling us to focus on our greatest opportunities, Saks Fifth Avenue and Hudson’s Bay.”
Since taking the helm at HBC last year, Foulkes has been under pressure to turn the struggling retailer around. In fiscal 2018, Lord & Taylor represented approximately 15% of HBC’s $9.4 billion in retail sales. The company’s adjusted EBITDA was $462 million, reflecting a $119 million loss attributed to Lord & Taylor.
Buyout bids on the table
Just two weeks ago, Canadian private equity firm Catalyst Capital Group bought a 10% stake in HBC in an attempt to block a proposed takeover by Richard Baker, former CEO and current chairman.
In a statement, Catalyst confirmed its acceptance of 18.5 million shares in HBC for a cash price of $10.11 per share. Subsequently, the stock jumped almost 8%, as investors hoped that the previous bid of $9.45 per share, offered by Baker, would be raised. Baker’s bid of $1.3 billion was to take the company private.
Although Baker’s original bid in mid-June boosted the stock by over 40% the day the news of the offer broke, minority stakeholders were unimpressed with the offer. Led by activist investor Jonathan Litt, the opposition to Baker’s bid called the offer “woefully inadequate due to the exceptional assets the company owns.”
These shareholders claim that the true value of the stock is between $28 and $33 per share. However, now that the Lord & Taylor brick-and-mortar sites have been sold, HBC’s assets have gotten significantly smaller.
Changes by CEO
Foulkes has been desperately trying to salvage the company. Since her year-long tenure began, she has made the following changes:
- the closure of all Home Outfitter locations throughout Canada
- the $1.1 billion sale of Lord & Taylor’s landmark building in New York City
- the sale of the Gilt brand, which HBC purchased in 2015 for $250 million
- the sale of all HBC’s stake in German real estate and retail for $1.5 billion
The bottom line
Even as the CEO attempts to save HBC from the fate of similar North American retailers JCPenny and Sears, Foulkes is fighting a losing battle. I would advise caution before investing in the company. There is too much uncertainty, stock volatility, and increasing competition from companies more agile in e-commerce to make this retailer look appealing.
