The Ontario Securities Commission released a series of details on Thursday about a bid to takeover Hudson’s Bay Co. that it believes shareholders need to know before voting on the deal.
The ruling, which expands upon a brief oral decision given at the close of the OSC’s hearing last week, orders that, if HBC chairman Richard Baker’s group of majority shareholders wants to proceed with the takeover, the company needs to correct its circular on the deal sent to shareholders last month. That process will take at least 19 days, pushing any potential vote on the deal into 2020.
The updated circular must address new information that has come to light this month, as well as concerns raised during the last week’s three-day OSC hearing about whether a special committee of the board of directors adequately supervised the privatization bid.
The OSC asked the company to provide shareholders with an analysis around competing bids. The special committee has maintained it did not receive any superior proposals during its months-long deliberation process. But it has also said that because Baker’s group refuses to sell its 57 per cent stake, other bids aren’t feasible. The OSC order asks HBC to be clear about any provisions in the arrangement agreement with Baker’s group and “the effect of such provisions on the practicality of alternative transactions emerging.”
The circular also needs to tell shareholders about any limitations the special committee put on appraisers of HBC’s biggest asset, the Saks Fifth Avenue flagship in Manhattan. CBRE’s appraisal, which contributed to the fair value assessment of HBC, put the value at $2.1 billion for the property — a $2.7-billion drop from an independent appraisal in 2014. But the OSC wants HBC to say whether CBRE “in its professional judgment, considered such appraisal to be based on scenarios constituting the highest and best use.”
In testimony to the OSC last week, special committee chair David Leith said the special committee wasn’t formally tasked with supervising the privatization until June. That’s more than two months after Baker first told the board of directors he was considering such a move, using proceeds from the $1.5-billion sale of HBC’s European assets — a deal Baker himself was working on.
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The OSC wants HBC to tell shareholders about the discussions behind a decision to announce the European sale on June 10, the same day as Baker announced his take-private bid. The circular needs to discuss the implication of that simultaneous announcement and whether the market could “absorb the significance” of the European sale while the takeover bid was also public.
The vote on the deal was originally scheduled for a shareholder meeting this week, but the OSC order forced HBC to cancel that meeting. Catalyst Capital Group Inc., HBC’s largest minority shareholder, requested the hearing as part of its campaign to derail the deal. In addition to a new circular, Catalyst also wanted the OSC to block Baker’s bid entirely, but the OSC declined that request.
The new circular will need to be marked up so shareholders can see the changes ordered by the OSC. The OSC order also has to be attached to the circular. Five days before sending the new circular to shareholders, HBC will need to submit a draft to the OSC for review. Once shareholders receive the circular, HBC will have to wait another 14 days before conducting a shareholder vote.