The bid to take Canada's oldest retailer private faces another obstacle as a minority shareholder seeks to block the proposal, led by Hudson Bay Co.'s executive chairman Richard Baker, in court.
The group behind the $10.30 per share bid is "seeking to take HBC private at a steep discount, depriving minority shareholders ... of fair value for their shares," according to a lawsuit filed by Pangaea Ventures L.P. and Ortelius Advisors L.P. at the Ontario Superior Court of Justice Friday.
New York-based Ortelius is an investment manager that controls all decisions related to the buying and selling of Pangaea's securities, including its 876,450 of HBC's common shares that account for 0.476 per cent of the company's outstanding common shares.
"The defendants have deliberately engaged in actions that have prevented a fair expression of HBC's market price through the deliberate timing of disclosures, misleading information and a structured bid that permits no competition," the document reads.
HBC, Baker and Rupert Acquisition Ltd. — which represents the shareholders behind the privatization bid — are listed as defendants.
None of the claims have been proved in court.
The suit calls for "an order permanently prohibiting" the Baker-led group's privatization proposal from going forward and an amendment to the company's information circular, which it alleges is misleading.
HBC and the shareholder group, which controls about 57 per cent of HBC's common shares on an as-converted basis, reached an agreement in October for the company to be taken private after the group upped its offer from $9.45 per share to $10.30.
Since then, the company has been vocal about reminding its minority shareholders to vote for the proposal at an upcoming Dec. 17 meeting. For the deal to succeed, a majority of minority shareholders — not including those behind the deal — must vote in favour.
A spokesperson for the plaintiffs declined to confirm how Ortelius plans to vote. But the lawsuit alleges shareholders are being "forced to sell their shares at a steep discount."
It claims Baker led a "secret and oppressive" campaign to privatize HBC and as of 2017, "had his eye on his own advantage."
Baker, who ought to have recused himself from his role when he first advised HBC's board of his intention in the spring of 2017, structured transactions to advantage his plan, it claims.
He, for example, timed announcements to cap the price of the company's shares, documents read. When HBC announced in June it sold the balance of its European joint venture assets for $1.5 billion, the company's stock ought to have at least doubled, according to the suit.
"Baker deliberately prevented news of this monumental transaction from being absorbed by the market," it reads, by announcing his initial $9.45 per share privatization bid shortly afterwards.
"This announcement effectively put a ceiling on the value of HBC shares."
The company also issued an information circular "purposely designed to convey a pessimistic view of the company," according to the suit, which contradicts the optimistic view HBC expressed prior to Baker's bid. It also allegedly undervalues HBC, including its most valuable asset, the flagship Saks Fifth Avenue location in New York City by at least $2 billion.
That view intends to justify the offer price per share and dissuade competing bids, it reads.
Baker also put structures in place to ensure that any privatization-bid oversight "would be handcuffed in terms of attracting any competing proposals," the lawsuit claims.
In late November, Catalyst Capital Group Inc. made an unsolicited competing offer of $11 per share. HBC's special committee rejected it in early December after the Baker-led group said it was "not interested in any transaction that would result in a sale of their interests in HBC," according to an HBC press release.
The lawsuit alleges the Catalyst offer "is clearly superior" at 70 cents higher, but the special committee confirmed it can not view any other bid as superior as the Baker-led group refuses to sell its shares.
"There is no mechanism for the minority shareholders to receive fair market value for their shares because there is no mechanism for anything approaching a fair, free, open and transparent competitive market for the common shares."
In a release late Friday, the special committee of the board of Hudson’s Bay refuted the lawsuit.
"Contrary to the baseless allegations being made by The Catalyst Capital Group Inc., the special committee of the company’s board of directors conducted a rigorous and thorough process," the release said.
The committee said Baker received permission to explore the possibility of developing a take-private proposal with other large, long-term shareholders of the company, and to share information on a confidential basis.
It said in the context of declining stock price and the ongoing challenges and risks facing the company, a proposal that would provide liquidity to minority shareholders could be in the best interests of the company, and to recommend such a proposal to shareholders.
The committee said any such transaction it might recommend would be subject to minority shareholder approval and other protections under applicable corporate and securities laws.
The matter is also before the Ontario Securities Commission after Catalyst, which controls about 17.49 per cent of HBC's common shares, requested a hearing to block the bid. The OSC hearing is scheduled to begin on Dec. 11.
Catalyst wants the OSC to block the privatization bid or, at least, require HBC to amend its information circular.
The Baker-led group has said in a letter to HBC's special committee that has been made public that it filed a complaint to the OSC, but the OSC could not confirm that due to policies intended to protect the integrity of investigations.
This report by The Canadian Press was first published Dec. 6, 2019.
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Companies in this story: (TSX:HBC)