Hudson’s Bay Executive Chairman Richard Baker aims for the long shot of taking the company private

Key Points
  • Richard Baker, executive chairman of Saks-owner Hudson's Bay is trying to raise equity to fund a take-private of the company.
  • A potential deal would be challenging due to retail distress.
  • The move comes as activist Land & Buildings Investment Management has urged the company to explore real estate monetization or go private.
Ramin Talaie | Bloomberg | Getty Images

The executive chairman of the owner of Saks and Lord & Taylor is trying to raise equity to fund a take-private of the company, a challenging gambit given the difficulties that leveraged retailers have faced over the past two years, sources familiar with the situation said Friday.

Hudson's Bay Company Executive Chairman Richard Baker is a principal shareholder in the company through his investment in L&T B (Cayman), which has 17.7 percent ownership. Baker is talking to private equity firms in an effort to take his company private, amid pressure from activists to either do so or to redevelop its real estate assets. His push is a long shot, say people familiar with the matter, given struggles by various retailers and the recent bankruptcy filing at Toys R Us.

Other major shareholders include the Abu Dhabi Investment Council with 17.7 percent and the Ontario Teachers' Pension Plan Board with 12.6 percent, according to the company's latest proxy.

Hudson's Bay, which has a market capitalization of 2.35 billion Canadian dollars, said it does not comment on rumor or speculation. It owns Saks, Lord & Taylor and Gilt Group.

The efforts underline the Catch-22 that retailers face, with public investors pounding their stock and private market investors wary of financing a deal that could help them escape the public spotlight.

Activist investor Land & Buildings Investment Management has urged Hudson's Bay to go private or redevelop its real estate assets. The Jonathan Litt-led firm revealed a 4.3 percent stake in Hudson's Bay earlier this summer.

Leveraged buyouts of retailers have become increasingly difficult to finance, with lenders concerned about the albatross of debt payments as retailers must invest in technology and innovation to help adapt to the changing retail landscape.

Toys R Us filed for bankruptcy this week more than a decade after being taken private by financial buyers. Department stores Neiman Marcus and Bon-Ton are both working with advisors to address their debt load.

Still, department stores have not completely abandoned take-private efforts, with some owners and management teams attracted to the appeal of escaping the punishing Wall Street eye. The Nordstrom family, a significant shareholder in the Seattle-based department store, is attempting its own management buyout.

Hudson's Bay is well-versed in the recent difficulties posed by retail acquisitions. Its attempts to buy both Macy's and Neiman Marcus over the past year faltered amid financing and industry challenges.

The retailer is leveraged around 12 times its earnings before interest, taxes, depreciation and amortization, compared with 1.6 times for Nordstrom and 2.4 times for Macy's, according to Capital IQ.

Hudson's Bay has built a retail empire based on the real estate prowess of Baker, who ran NRDC Equity Partners, the private equity firm that bought Hudson's Bay and took it public. The company has been notable among its retail peers for being an aggressive acquirer. In addition to Saks Fifth Avenue in 2013, its acquisitions include Germany's Galeria Kaufhof in 2015 and online shop Gilt Groupe last year.

To help fund these deals, it has set up joint ventures with real estate firms like RioCan Real Estate Investment Trust and Simon Property Group.

Like all nearly all department stores, it has seen same-store sales and profit drop. In June, the company said it would cut about 2,000 jobs across North America.

CORRECTION: Hudson's Bay Executive Chairman is Richard Baker. His title was misstated in an earlier version of this article.