Hudson’s Bay Co. to buy Saks Inc. for $2.9 billion
Toronto-based Hudson's Bay Co. will buy Saks Inc. for about $2.9 billion, including assumed debt. Hudson’s Bay (HBC) operates the Hudson’s Bay chain of department stores in Canada and the Lord & Taylor department store chain in the U.S., while Saks Inc. operates Saks Fifth Avenue and Off 5th outlet stores in the U.S.
The combined company will do about $7.2 billion in annual sales and operate 320 stores, including 179 full-line department stores, 72 outlet stores and 69 home stores in prime retail locations throughout the U.S. and Canada, along with three e-commerce sites.
HBC said it might form a real estate investment trust to own the combined companies’ substantial store portfolio, which includes a number of marquee properties such as Saks Fifth Avenue locations on Fifth Avenue in New York City and Wilshire Boulevard in Beverly Hills; Lord & Taylor's Fifth Avenue flagship; and Hudson's Bay properties in downtown Toronto, Vancouver and Montreal, among others.
"This exciting portfolio of three iconic brands creates one of North America's premier fashion retailers," said Richard Baker, HBC's Chairman and CEO, in a press release. "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."
The $2.9-billion price tag is a fair deal for Saks, chairman and CEO Steve Sadove said in a press release. "HBC recognizes the tremendous value of our people, our real estate, our customer and vendor relationships, and most importantly the power and potential of our iconic brand,” he said. “The $16-per-share price represents an approximate 30-percent premium to the May 20, 2013 closing price."
HBC said it plans to introduce Saks into Canada through full-line, outlet and online formats, building upon Canada's position as saks.com's largest international ship-to market. The combination will maximize existing e-commerce platforms across all three banners to enhance customers' shopping experience. HBC said it also plans to continue the Off 5th outlet division’s expansion throughout the U.S.
HBC also said it expects to realize $100 million in annual synergies within three years through a combination of operational efficiencies, implementing best practices across banners and back-office consolidation.
Saks will operate separately under the HBC umbrella, including its own merchandising, marketing and store operations teams, and will remain headquartered in New York City.
HBC intends to finance the transaction with a combination of approximately $1 billion of new equity, $1.9 billion of senior secured loans, $400 million of senior unsecured notes and available cash on hand. An entity affiliated with Ontario Teachers' Pension Plan and funds advised by West Face Capital Inc. have separately committed to provide HBC with $500 million and $250 million of equity funding, respectively, to support this transaction. BofA Merrill Lynch and Royal Bank of Canada have also provided HBC with fully committed credit facilities.
Hudson's Bay Company was founded in 1670 and purchased in 2008 by NRDC Equity Partners' Robert Baker, Bill Mack, Lee Neibart and Richard Baker, who had previously purchased Lord & Taylor in 2006. In Canada, HBC operates Hudson's Bay, Canada's largest department store with 90 locations, unsurpassed in its fashion, beauty, home and accessory designers and brands, as well as thebay.com. HBC also operates Home Outfitters, Canada's largest home specialty superstore with 69 locations across the country. In the United States, HBC operates Lord & Taylor, a department store with 48 full-line store locations throughout the northeastern United States and in two major cities in the Midwest, and lordandtaylor.com.
Saks Incorporated currently operates 41 Saks Fifth Avenue stores and 67 Saks Fifth Avenue Off 5TH stores throughout the United States.