Dec 10, 2019
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Hudson's Bay director says ISS report critical of buyout plan "misleading"

Dec 10, 2019

The Hudson’s Bay Co director who led the board committee that negotiated the sale of the company to a group of controlling shareholders said on Monday a report by Institutional Shareholder Services Inc (ISS) criticizing the deal was “misleading.”


On Friday, the proxy advisory firm recommended that minority shareholders vote on Dec. 17 against a C$1.9 billion ($1.4 billion) plan to sell the Saks Fifth Avenue owner to a consortium led by executive chairman Richard Baker, on the grounds the committee could have pushed for a better deal.

“ISS has factual errors in its report we would like corrected, because they are misleading shareholders,” David Leith, who chaired the special board committee, told Reuters in an interview.

The special committee rejected a C$2.03 billion offer for Hudson’s Bay from Canadian private equity firm Catalyst Capital Group Inc on the basis that Baker’s consortium, which has 57% voting control over Hudson’s Bay, made it clear that it would not support a sale to another party.

Catalyst owns roughly 17.5% of Hudson’s Bay.

But ISS said in its report that the special committee should have taken advantage of its leverage over the fact that another large shareholder, Fabric Luxembourg Holdings, needed the committee’s permission to join the buyout consortium.

Fabric Luxembourg, an investment vehicle of private equity firm Rhône Capital LLC with 23.5% of voting control in Hudson’s Bay, was subject to a “standstill waiver” agreed in 2017 that put restrictions on what it could do as a shareholder.

The consortium wanted Rhone Capital to be included so it could have more equity to finance the deal and fewer shareholders to cash out.

ISS argued that the special committee should have asked the buyout consortium to renege on its refusal to consider the sale of the company to another party in exchange for allowing Rhône Capital to participate.

Leith said there was no point in the committee trying to leverage this, because the consortium would have still refused to sell its holdings in the company.

“The Fabric standstill waiver was not required for the remaining shareholders making the offer to be able to block the company’s sale to another party,” he said.

At least three-quarters of shareholders need to vote in favor of the sale of the company. With 34.7% of voting control, Baker and his allies could have vetoed a sale even without Rhône Capital, Leith said.

“We did not ask Baker’s consortium to lift its restriction on the sale of the company to someone else in exchange for providing the Fabric standstill waiver because it was not realistic. From every action we had seen, they were not interested in selling,” Leith said.

An ISS spokesman declined to comment on Leith’s criticism, but noted that the firm’s policy is to correct any factual inaccuracies in its reports and subsequently issue an alert to its clients noting any changes.

The spokesman confirmed that the proxy advisor had not issued such an alert.

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