Hudson’s Bay Company to Buy Saks Inc. for $2.4 Billion

Saks Fifth Avenue's New York flagship, one of the prime retail locations in the world

Saks Fifth Avenue’s New York flagship, one of the prime retail locations in the world

Toronto and New York—Hudson’s Bay Company confirmed today that it plans to buy Saks Inc. in a $2.4 billion deal that will bring Saks Fifth Avenue northward to Canada.

HBC, which operates Lord & Taylor in the United States and Hudson Bay in Canada, is offering $16 per share, a 30% premium over levels in May when rumors emerged that Saks had put itself up for sale.

While there still is a 40 day “go shop” period when Saks Inc. could seek higher bids, the company doesn’t expect any and anticipates the deal will close by year-end.

Richard Baker, the New York-based chairman/ceo at HBC,  said in a conference call with analysts that he saw the potential for up to seven Saks Fifth Avenue stores in Canada, where some existing Hudson’s Bay doors might be converted. He also speculated that at least 25 Off Fifth outlet stores may be opened to Canada.

Under Baker’s plans, Saks would operate as a separate division within HBC and have its merchandising, marketing and store operations teams and its headquarters would remain in New York. Saying that he hopes to get Saks’ Canadian stores open “as soon as possible,” Baker expects Saks’ e-commerce business to get a boost by expanding into Canada as well.

To Create Real Estate Trust?

Since the combined company would have flagship stores in New York, Montreal and Toronto, HBC said it would consider creating a real estate investment trust to benefit from that portfolio.

Saks’ Fifth Avenue flagship generates an estimated $600 million in sales a year, and some estimates value the building itself as worth $1 billion.

“The Fifth Avenue store is a gem and everything else is second to that,” said retail analyst Walter Loeb. “Many of the stores are not as productive.”

Saks has closed department stores in Portland, Oregon, and Dallas, but pushed its Saks Off Fifth outlet chain. Saks now operates 42 full-service department stores and 66 Off Fifth outlets.

HBC will finance the deal with about $1 billion in new equity, $1.9 billion in senior secured loans and $400 million of senior unsecured notes, as well as cash on hand.

Bank of America Merrill Lynch was HBC’s lead financial adviser, with RBC Capital Markets providing additional services.

Saks will be entering a Canadian retail market that’s getting flush with U.S. retailers. Target plans to open 124 stores this year. Nordstrom plans to open eight full-line department stores as well as 20 Nordstrom Rack stores throughout Canada. Tanger Factory Outlet Centers Inc. broke ground this year on its fourth Canadian outlet mall, and plans to have up to six more by the end of the decade. Walmart and Costco Wholesale Corp. are also expanding in what has been called an underserved consumer market in Canada.

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Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com

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