Has the hunter become the hunted?
Shares in Hudson’s Bay, the highly acquisitive Canadian retailer, surged nearly 16 per cent on Monday after a US activist investor disclosed a 4.3 per cent stake in the company and urged management to explore strategic options, including taking itself private.
Land & Buildings Investment Management, a Connecticut-based fund, said in a letter to Hudson’s Bay that it should abandon efforts to buy struggling retail chains such as Neiman Marcus or Macy’s and instead focus on ways to unlock value from its vast real estate holdings.
As has been thoroughly reported, any transaction of this type would be challenging and complicated. To date, the only result of these efforts has been the stock declining nearly 25% since the deal talks surfaced, and the Company announcing last Thursday that it would be undertaking a massive $350 million restructuring to realign its own business “to get ahead of the changing retail landscape.
We believe this sequence of events underscores a core fact: the path to maximizing the value of Hudson’s Bay lies in its real estate, not its retail brands. In our view, the whole time the Company’s management has been struggling to navigate this complicated maze of M&A options, the answer lies in its own real estate portfolio.
Relatively unknown outside of Canada until a few years ago, Hudson’s Bay has aggressively expanded its footprint in the US over the past five years, snapping up in quick succession Lord & Taylor, then Saks and flash-sale website Gilt. It made an approach for Macy’s earlier this year and briefly held preliminary talks with Neiman Marcus.
In its letter, Land & Building called Hudson’s Bay a “diamond in the rough” and said the value of the company’s real estate is worth four times the stock’s Friday closing price of C$8.88.
Hudson‘s Bay is a real estate company, full stop. If there is a smarter and better use of any or all of the locations, stores should be closed and redeveloped and put towards their optimal use.
Land & Building argued that given the public market’s persistent undervaluation of the company’s stock, the board should also evaluate being taken private by the current management given that about 20 per cent of the company is held by insiders.
In a statement Hudson’s Bay said it has received Land & Building’s letter and will “respond in due course.”
News of activist interest in Hudson’s Bay comes less than a week after the company announced plans to axe 2,000 jobs amid bigger-than-expected first-quarter losses.
Shares in Hudson’s Bay, down more than 40 per cent over the past year prior to Monday, was trading 15.4 per cent higher at C$10.24, giving it a market value of around C$1.96bn.