Hudson's Bay To Acquire Saks For $2.9 Bln, Including Debt

(RTTNews) - Confirming media reports, Canadian department-store chain Hudson's Bay Co. (HBC.TO), owner of Lord & Taylor, and Saks Inc. (SKS) said Monday they have entered into a definitive merger agreement for HBC to acquire the luxury retailer for $16 per share in an all-cash transaction valued at about $2.9 billion, including debt. Saks' shares are rising in pre-market activity.

The per share price represents an approximate 30 percent premium to the May 20 closing price, the day before media speculation began.

The deal has been approved by both companies' board of directors. It is expected to close before the end of the calendar year. There is a 40-day "go-shop" period, during which Saks may solicit alternative proposals from third parties.

Saks, which is yet to recover fully from recession, had hired Goldman Sachs Inc. (GS) to explore strategic alternatives.

The transaction will bring together three of the retail industry's iconic brands - Hudson's Bay, Lord & Taylor and Saks Fifth Avenue. The combination will address a broad consumer spectrum across the luxury, mid-tier and outlet retail sectors.

HBC will continue to build upon Saks' position and identity as a luxury retailer. The combined company will operate 320 stores in prime retail locations in the U.S. and Canada, along with three e-commerce sites.

The combination would have generated pro forma sales and normalized EBITDA of approximately C$7.2 billion and C$587 million, respectively, in fiscal 2012 before any synergies.

HBC anticipates to achieve C$100 million of annual synergies within three years. This will be effected through operational efficiencies, implementing best practices across banners and back-office consolidation.

Richard Baker, HBC's Chairman and CEO, said, "This exciting portfolio of three iconic brands creates one of North America's premier fashion retailers...With the addition of Saks, HBC will offer consumers an unprecedented range of retailing categories and shopping experiences."

Baker, who is a real-estate investor, added that this acquisition would increase HBC's growth potential in the U.S. and Canada and would add to its powerful real estate portfolio.

HBC will evaluate strategic alternatives to fully realize the substantial value from the combined property portfolio including the creation of a real estate investment trust.

Saks will be introduced in Canada through full-line, outlet and online formats, building upon Canada's position as saks.com's largest international ship-to market. HBC also plans to continue OFF 5TH's expansion throughout the U.S.

Saks will operate separately under the HBC umbrella and will remain headquartered in New York City. It is expected to continue to be led by key members of its existing management team.

HBC plans to finance the deal, and refinance some existing debt, with a combination of $1.0 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 committed to provide HBC with $500 million and $250 million of equity funding, respectively. Additionally, BofA Merrill Lynch and Royal Bank of Canada have provided fully committed credit facilities.

The company has received conditional listing approval from the Toronto Stock Exchange to issue its common shares to Ontario Teachers' and West Face. Concurrently with the execution of the merger agreement, HBC has issued 1.5 million share purchase warrants to Ontario Teachers and will issue another 3.5 million upon the closing of the transaction.

HBC will issue 1.75 million share purchase warrants to West Face upon the closing of the transaction. The subscription price of the common shares and the exercise price of the warrants will be C$17 per share.

HBC intends to continue to pay a quarterly dividend of C$0.09375 per share through closing of the transaction. After closing, HBC expects to reduce its quarterly dividend to C$0.05 per share to accelerate deleveraging in the short term.

SKS closed up 0.9 percent on Friday at $15.31. The stock is gaining 3.7 percent in pre-market activity.

HBC.TO settled up 0.2 percent at C$16.49.