AlphaSituations-Event/Catalyst Driven Research, AlphaSituations

Robert Sassoon

AlphaSituations-Event/Catalyst Driven Research

AlphaSituations

Since its establishment, AlphaSituations has delivered a track record of outperformance with a hit rate of winners of more than 70% of its portfolio of ideas generating annualized average returns of 20%. In January 2022, AlphaSituations was contracted by Water Tower Research, an investor engagement and stakeholder communication platform to provide coverage of Special Situations

Event-Driven

On October 21, 2019, North American department store group Hudson’s Bay (HBC CN) announced that it had entered into a definitive agreement with a management backed buyout group which collectively owns approximately 57% of the common shares of the company on an as-converted basis, whereby the buyout group would purchase the remaining outstanding equity capital of HBC for C$10.30/share, a 9% increase over initial C$9.45 proposal. However, the basis upon which the agreed proposal was made  incorporates an $8.75/share appraisal of HBC's real estate portfolio which is  well below the $35/share highlighted by the company itself only 2 years ago.While some of the discrepancy can be explained away by asset sales and an increase in share count, the biggest single factor behind the value drop is from an unexpected source- HBC's most coveted property, the Saks Fifth Avenue Flagship site whose value has dropped from ~C$16 to ~C$1.7.  The value of the Saks Fifth Avenue Flagship was a key premise upon which activist investor Land &amp; Buildings launched its campaign against HBC management in June 2017 aimed at unlocking the value trapped in HBC's real estate. The significantly lower value for the property raises questions over whether HBC had misled shareholders inviting the prospect of unwanted litigation.Leaving aside the litigation risk, it looks like the buyout proposal will not pass the threshold of minority votes required to approve the deal.The Special Committee’s value assessment for HBC  of a C$10-C$12.25 value range does open the door for a further sweetening of the offer, but that should be weighed against a lack of desire or ability by the buyout group which includes troubled WeWork to raise more capital for a higher bid. A collapse of the buyout plan will likely have negative ramifications for the HBC share price, which we believe will likely return to the C$6s from whence it came when the initial proposal was made back in June. We opine that this situation has potentially more downside than upside risk.

On October 21, 2019, North American department store group Hudson’s Bay (HBC CN) announced that it had entered into a definitive agreement with a management backed buyout group which collectively owns approximately 57% of the common shares of the company on an as-converted basis, whereby the buyout group would purchase the remaining outstanding equity capital of HBC for C$10.30/share, a 9% increase over initial C$9.45 proposal. However, the basis upon which the agreed proposal was made  incorporates an $8.75/share appraisal of HBC's real estate portfolio which is  well below the $35/share highlighted by the company itself only 2 years ago.While some of the discrepancy can be explained away by asset sales and an increase in share count, the biggest single factor behind the value drop is from an unexpected source- HBC's most coveted property, the Saks Fifth Avenue Flagship site whose value has dropped from ~C$16 to ~C$1.7.  The value of the Saks Fifth Avenue Flagship was a key premise upon which activist investor Land &amp; Buildings launched its campaign against HBC management in June 2017 aimed at unlocking the value trapped in HBC's real estate. The significantly lower value for the property raises questions over whether HBC had misled shareholders inviting the prospect of unwanted litigation.Leaving aside the litigation risk, it looks like the buyout proposal will not pass the threshold of minority votes required to approve the deal.The Special Committee’s value assessment for HBC  of a C$10-C$12.25 value range does open the door for a further sweetening of the offer, but that should be weighed against a lack of desire or ability by the buyout group which includes troubled WeWork to raise more capital for a higher bid. A collapse of the buyout plan will likely have negative ramifications for the HBC share price, which we believe will likely return to the C$6s from whence it came when the initial proposal was made back in June. We opine that this situation has potentially more downside than upside risk. 

ActivistTalk: Hudson's Bay Go Private Proposal - Why It Raises Questions & Could Invite Lawsuits

When AlphaSituations initiated coverage of this activist situation in the wake of intervention from activist fund Land &amp; Buildings (L&amp;B) in July 2017, we were hopeful of Hudson's Bay (HBC CN) moving towards or being pushed into unlocking the substantial value trapped in its real estate assets. However, two years on, somewhat disappointingly, L&amp;B’s agitation and HBC management’s mixed results efforts to turn around the company’s retail operations have culminated in a management-led buyout proposal of C$9.45/share that delivers little incremental value to minority shareholders. The buyout proposal offers little recognition of the value of HBC’s real estate assets estimated by HBC’s own management at ~C$28/share. However, when considered in the context of a retail business buyout, the perspective is very different. The offer values HBC at ~11X Consensus 2019 EBITDA which is towards the top end of the North American Department Store peer valuation range and significantly higher than the ~5X at which Macy’s (M US) and Nordstrom (JWN US) are presently trading.With the management-led buyout group in control of 57% of HBC’s fully diluted share count, we see little pressure on it to raise its offer by more than a modest amount at best, if at all. This is reflected in the HBC share price which currently trades at ~5% premium over the buyout offer. It is also very possible that the buyout proposal may ultimately collapse as it is subject to approval by the minority shareholders and with the shareholders of the buyout group ruling out the sale of their equity to a third party. After two years of frustration, we posit that the risk-reward profile for the share price is unattractive and will remain so until there is evidence of more substantive moves to unlock the value of its real estate assets through asset monetization or through REIT conversion which are currently not on the immediate horizon. We think L&amp;B will likely continue to be frustrated and may decide there is greater wisdom in an exit strategy as did Starboard after failing to convince Macy’s (M US) to pursue a REIT conversion strategy for its real estate assets in 2016.

When AlphaSituations initiated coverage of this activist situation in the wake of intervention from activist fund Land &amp; Buildings (L&amp;B) in July 2017, we were hopeful of Hudson's Bay (HBC CN) moving towards or being pushed into unlocking the substantial value trapped in its real estate assets. However, two years on, somewhat disappointingly, L&amp;B’s agitation and HBC management’s mixed results efforts to turn around the company’s retail operations have culminated in a management-led buyout proposal of C$9.45/share that delivers little incremental value to minority shareholders. The buyout proposal offers little recognition of the value of HBC’s real estate assets estimated by HBC’s own management at ~C$28/share. However, when considered in the context of a retail business buyout, the perspective is very different. The offer values HBC at ~11X Consensus 2019 EBITDA which is towards the top end of the North American Department Store peer valuation range and significantly higher than the ~5X at which Macy’s (M US) and Nordstrom (JWN US) are presently trading.With the management-led buyout group in control of 57% of HBC’s fully diluted share count, we see little pressure on it to raise its offer by more than a modest amount at best, if at all. This is reflected in the HBC share price which currently trades at ~5% premium over the buyout offer. It is also very possible that the buyout proposal may ultimately collapse as it is subject to approval by the minority shareholders and with the shareholders of the buyout group ruling out the sale of their equity to a third party. After two years of frustration, we posit that the risk-reward profile for the share price is unattractive and will remain so until there is evidence of more substantive moves to unlock the value of its real estate assets through asset monetization or through REIT conversion which are currently not on the immediate horizon. We think L&amp;B will likely continue to be frustrated and may decide there is greater wisdom in an exit strategy as did Starboard after failing to convince Macy’s (M US) to pursue a REIT conversion strategy for its real estate assets in 2016.

ActivistTalk:Land & Buildings/Hudson's Bay Co - The Conundrum In HBC Management's Go-Private Bid

Canada

Hudson's Bay Company offers a selection of branded merchandise in Canada and the United States. The Company operates department stores and other retail stores that offers kitchen and bed and bath products.

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Hudson's Bay Co (HBC CN)

ActivistTalk: Hudson's Bay Go Private Proposal - Why It Raises Questions & Could Invite Lawsuits

On October 21, 2019, North American department store group Hudson’s Bay (HBC CN) announced that it had entered into a definitive agreement with a...

Robert Sassoon

ActivistTalk:Land & Buildings/Hudson's Bay Co - The Conundrum In HBC Management's Go-Private Bid

When AlphaSituations initiated coverage of this activist situation in the wake of intervention from activist fund Land & Buildings (L&B) in...

Robert Sassoon

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)