Hudson's Bay Co. minority shareholders should vote against a privatization bid led by the retailer's executive chairman, says an influential proxy advisory service that points to a rejected, higher-priced offer.
Institutional Shareholder Services Inc. recommended minority shareholders vote against the Richard Baker-led bid of $10.30 per share that has received the HBC board's approval. The proxy advisory service raised several concerns about the sale process, including around disclosures and the ability for a special committee formed to review the Baker bid to consider other proposals.
"Given that significant defects have been identified with the sale process, shareholders cannot be confident they are receiving maximal available value for their shares," wrote ISS in a research note dated Friday.
The special committee appears to have "handcuffed itself" from deeming another proposal to be superior, the report reads. It defines superior, in part, as "reasonably capable of being completed without undue delay," according to the report.
After Catalyst Capital Group, a minority shareholder that controls about 17.49 per cent of the company's shares, made an unsolicited offer to takeover the company for $11 per share, the committee rejected it because the Baker-led group, which controls about 57 per cent of shares, said they were uninterested in selling.
The group's opposition "means the transaction is incapable of being completed," the committee said in a statement at the time.
"Shareholders must question whether the special committee has effectively tied its own hands," reads the ISS report, which concludes "there is no legitimate rationale from a governance perspective" to recommend accepting a $10.30 per share price "in light of what appears to be a legitimate outstanding" higher offer.
Catalyst has said its offer will stand if shareholders reject the Baker-led bid, which they are due to vote on at a special meeting on Dec. 17. The deadline to vote by proxy is Dec. 13.
"As such, shareholders are advised to vote against the acquisition by the continuing shareholders," concluded the ISS report.
The report is "flawed," according to a statement from the HBC board of directors released Monday morning.
It, among other things, misunderstands the superior proposal construct, it said.
"No board of directors, having concluded that an arrangement is in the best interests of the company, would terminate an arrangement agreement in order to enter into an alternative transaction, which is not reasonably capable of completion."
The board noted that if a majority of minority shareholders oppose the Baker-led bid, "it will not proceed."
It pointed to an acknowledgment by ISS that there is meaningful downside risk if shareholders don't approve the deal.
The ISS report notes the special committee recommended the privatization bid partly due to concerns around a deteriorating retail environment, declining real estate portfolio values and other issues.
"Any of these items, individually or collectively with others, could have further substantial negative effects on the value of HBC shares," ISS wrote.
However, it adds that Catalyst's commitment to its bid "helps mitigate the downside risk."
The HBC statement indicates only one offer is on the table.
"The $10.30 per share offer is the only offer available to minority shareholders and provides immediate and certain value at a significant market premium," said David Leith, chairman of HBC's special committee.
"We continue to strongly recommend that HBC shareholders vote for the take-private transaction."
The matter is also before the Ontario Securities Commission and the court.
Catalyst has asked a regulator to block the privatization bid or, at least, require HBC to amend its information circular. The OSC is scheduled to hear that matter on Wednesday.
"Catalyst has been working to protect the interests of the minority shareholders, including offering all shareholders a superior proposal to the Baker Group," said Gabriel de Alba, managing director and partner of Catalyst.
"We will continue to push the HBC independent directors to finally step up and do their duty to protect shareholders, run a true value maximization process and restrict the coercive and questionable efforts of Richard Baker."
Meanwhile, a New York-based investment manager filed a lawsuit at the Ontario Superior Court of Justice Friday to block the bid on behalf of a minority shareholder. Ortelius Advisors L.P. claims the bid forces minority shareholders to sell at "a steep discount."
None of the allegations has been proven in court.
This report by The Canadian Press was first published Dec. 9, 2019.
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