Hudson's Bay Co. shares were up 44 per cent Monday after a group of shareholders, including executive chairman Richard Baker, proposed taking the retailer private once it completes the sale of its remaining German holdings for $1.5 billion.
The group, which holds a 57 per cent stake in HBC, is offering $9.45 per share in cash to other investors – the same price paid by one of Baker's business entities to the Ontario Teachers' Pension Plan in January.
"While we continue to believe in HBC's long-term potential, it has become clear that the significant challenges, risks and uncertainties facing HBC in the rapidly evolving retail environment are best addressed in a private market setting," Baker said in a statement.
"Our all-cash proposal would provide HBC's public shareholders the ability to realize immediate and certain value for their shares at a substantial premium while transferring the risks and uncertainties facing HBC to the continuing shareholders."
HBC shares, which ended last week at a record-low close of $6.37, have been falling in recent years as the company has struggled to keep up with a changing retail environment.
The shares traded for $9.16 at mid-afternoon Monday, after hitting a 2019 intraday high of $9.40 earlier in the day.
The privatization proposal is conditional on HBC selling its remaining stake in a German real estate joint venture and divesting its related German retail joint venture under a $1.5 billion deal with JV partner SIGNA, announced Monday.
The announcements come just days before the release of HBC's next financial report on Thursday, followed by a conference call hosted by HBC chief executive Helena Foulkes, and ahead of HBC's annual meeting on June 19.
In a statement on Monday, Foulkes said the plan to sell HBC's portion of its German joint ventures "is an exciting milestone" that capitalizes on HBC's German real estate and improves its financial strength.
"Strategically, we will be able to fully focus our resources on HBC's North American operations, including our best growth opportunities: Saks Fifth Avenue and Hudson's Bay."
She admitted publicly in April, during the company's fourth-quarter conference call, that a shift to lower-priced merchandise across the Hudson's Bay chain of department stores had resulted in disappointing revenue.
The strategy was successful in attracting former Sears Canada customers shortly after the rival chain closed last year, Foulkes said, but "I think we took it too far."
"The good news about all this is that it's fixable," Foulkes said.
Since Foulkes became CEO in February 2018, HBC has been streamlining its operations.
She announced in February that the Home Outfitters business in Canada will be closed and the Saks Off Fifth chain would close a number of U.S. and Canadian locations. She announced on May 6 that it's announcing strategic alternatives for its Lord and Taylor operating business, which is primarily in the eastern United States.
Under Baker's leadership, HBC expanded by acquiring New York-based luxury retailer Saks Fifth Avenue for about $2.9 billion including debt in late 2013 and German department store chain Galeria Kaufhof for $3.36-billion in 2015.
At the time of the Kaufhof announcement, Baker said it was part of a plan to make Saks Fifth Avenue and its Saks Off Fifth subsidiary into global brands.
In response to analysts who warned of the risks with moving into a culturally different market, Baker said in a June 2015 interview that "people like to throw stones but we think that we're on a very strong course."
However, the announcement of the move into Germany coincided with the beginning of a long-term decline of HBC's stock price from a record high close of $29.42 on June 23, 2015.
Among the loudest critics of HBC's performance under Baker's leadership has been Jonathan Litt, founder and chief investment officer of Land & Buildings, who said repeatedly the company had failed to unlock the "substantial real estate value trapped in the company."
The company's remuneration practices, including $54.8 million in total compensation in fiscal 2017 for Baker and $29.4 million in total compensation in fiscal 2018 for Foulkes, have also been criticized.
HBC said it has formed a special committee of independent directors to review the going-private proposal and provide a recommendation to other shareholders.
The committee will be chaired by David Leith, a former head of investment, corporate and merchant banking at CIBC World Markets and a member of HBC's board of directors since November 2012.
In addition to Baker, the shareholder group includes Rhone Capital LLC, WeWork Property Advisors, Hanover Investments (Luxembourg) SA and Abrams Capital Management LP.