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The flagship retail store of The Bay is an icon of downtown Toronto at the intersection of Yonge and Queen. It is the store to which Toronto families flock in the weeks before Christmas to see the seasonal displays in the windows along the main street of the city. Along with the Eaton Center, it is the anchor store of downtown Toronto.
The Bay is the retail arm of the Hudson’s Bay Company (TSX:HBC), which was founded in 1670 as a trading company to accommodate trappers who traded their furs for supplies. Unlike most companies that failed to change with the times, The Bay managed to evolve into a leading, upscale retailer over the ensuing centuries. It is, perhaps, the single shopping place in Toronto that most closely provides a shopping experience similar to places like Herrod’s in the UK.
After two months of speculation, the news was confirmed this morning that the Hudson’s Bay Company will be acquiring one of the U.S.’ premiere retail chains, Saks (NYSE:SKS), for $16.00 per share, an amount equal to nearly $2.4 billion. Saks’ share price jumped from $12.00 to just over $15.00 per share when rumors of the potential acquisition surfaced near the end of May. Saks’ share price is currently at $15.31, but when the offer of $16.00 was submitted on 20 May, it represented a 30% premium to Saks shareholders. HBC’s share price is at $16.49 this morning, having pulled back from just over $17.00 earlier this month.
Hudson’s Bay is committed to keeping the Saks brand separate and its headquarters continuing in New York City. The deal will also enable HBC to introduce Saks stores into Canada. Richard Baker, HBC Chairman and CEO, said “This acquisition will increase our growth potential both in the U.S. and Canada, generate significant efficiencies of scale, add to our powerful real estate portfolio and deliver substantial value to our shareholders.”
This is not the first foray by Hudson’s Bay into the U.S. It already owns the upscale Lord & Taylor department stores. It will also not be the first introduction of a non-Bay branded store into Canada, as HBC operates almost 70 Home Outfitter stores across the country along with its 90 Bay stores.
The BBC reported today that both boards have officially agreed to the deal, but that it will still require the approval of Saks shareholders. That could be a bit more difficult, although not impossible, to obtain as Baker cautioned shareholders that they should expect a cut in dividends until the Saks debt what also comes as part of the deal is paid.
The offer includes a 40-day window during which Saks may review offers from other interested suitors. There is, apparently, at least one other interested party, more than likely a private-equity investor.
The Hudson’s Bay offer, however, will offer synergies that a private equity group can not. Plus, it is not likely that Saks would move into Canada unless it were in conjunction with an existing Canadian entity. The Bay needs to reinforce its presence in the Great White North as another high-end, U.S. chain, Nordstrom (NASDAQ: JWN) plans to put its foot onto Canadian soil this year in direct competition with The Bay.
It’s been 343 years since The Hudson’s Bay Company was established in Canada. Most of the original founders and employees have long-since retired and expired, but their legacy lives on. I am pretty sure that it will continue to do so. Else, where would Torontonians go to see the unique Christmas window displays?
