Author Topic: HBC.TO - Hudson's Bay  (Read 2478 times)

writser

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Re: HBC.TO - Hudson's Bay
« Reply #10 on: August 20, 2019, 02:58:53 AM »
Interesting situation. Never looked at it for some reason. Always hard in Canada to figure out who owns shares. According to this article Litt had a 4.3% stake which would have been around 8m shares at the time? Did he buy/sell anything since? Looks like he still is involved. Then there is the Ontario teachers pension plan stake, 18m shares. And finally the Catalyst stake, 18.5m shares they just bought plus what they already had. I'm not sure if the pension plan tendered (some of) their shares.

Shares outstanding are ~184m + 55m from the preferreds for about 239m shares. The buyers control 57%. That leaves ~102m shares for the minority vote, i.e. it can be blocked with 51m shares. Best case: Catalyst just bought ~18.5m shares, they already owned a few million shares, Litt has ~8m shares and the Ontario pension plan has 18m shares. That's already basically a lock to vote down the deal. Worst case the Ontario pension plan sold a majority of their shares in the tender offer and I am double counting. Even in that case it's hard to see how see how dissenters have <25m shares. Still a major risk for the buyer group.

The chances of the current deal getting voted down seem high to me. The hard part is figuring out how the buyer group will react. Common sense suggests to me that the buyers currently want to spend ~C$1b to buy out minority shareholders. Adding ~C$200m to that seems like pocket change in relation to the size of the balance sheet, debt, operating leases, etc. However, there's also the question of whether the dissenters will agree with such a small price boost. If the owners want to shell out another C$500m seems more questionable to me.

And finally current prices already imply a decent chance of a higher offer - especially if you take into account the time value of this being a protracted battle. Seems interesting but I am not quite convinced yet. Just my first thoughts. Did I miss anything?
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kab60

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Re: HBC.TO - Hudson's Bay
« Reply #11 on: August 20, 2019, 04:19:16 AM »
Didnt Ontario Pension Plan sell 10 pct to buyout group in January? Per the offer.

writser

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Re: HBC.TO - Hudson's Bay
« Reply #12 on: August 20, 2019, 04:23:54 AM »
Didnt Ontario Pension Plan sell 10 pct to buyout group in January? Per the offer.

AFAIK that agreement was cancelled a few days after the bid was announced: https://toronto.citynews.ca/2019/06/18/teachers-drops-sale-of-its-stake-in-hudsons-bay-to-hbc-executive-chairman/ . Also see the press release filed on SEDAR on June, 18. Bit sneaky that they didn't post that one on their own website here ..
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

valueinvestor

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Re: HBC.TO - Hudson's Bay
« Reply #13 on: August 20, 2019, 09:49:09 AM »
Didnt Ontario Pension Plan sell 10 pct to buyout group in January? Per the offer.

AFAIK that agreement was cancelled a few days after the bid was announced: https://toronto.citynews.ca/2019/06/18/teachers-drops-sale-of-its-stake-in-hudsons-bay-to-hbc-executive-chairman/ . Also see the press release filed on SEDAR on June, 18. Bit sneaky that they didn't post that one on their own website here ..

At the end of the day, I think this is a different arbitrage. I was in this name for a long time and it is a 5% position for myself. Although management was very opportunistic at the expense of their minority shareholders, they were very conservative in valuing the real estate. Each time, they sold or refinanced, the value of the real estate was at a premium to their valuation. A lot of their real estate are irreplaceable assets, which provides a very good cushion, and considering we have activists with skin in the game, it seems like the possibility of a value destruction is very low.

Worst case scenario is that the deal falls through, and stock craters, but at the end of the day, I would double down again, as the intrinsic value of the company is still excellent. Even though the retail business is easy to kill, the real estate that they hold is resilient than most.

Update:

Also keep in mind, they have a lot of good brand under their fold such as Saks, Lord and Taylor and many more. I really do not think the market is correct in ascribing a zero value to them, and FWIW, I don't think Richard Baker was wrong in the direction he took to revitalize the retail business. He did take the right steps, but unfortunately, time and size cannot give them the speed to completely transform the model into what would be competitive today.
« Last Edit: August 20, 2019, 09:58:21 AM by valueinvestor »