Saks Inc. investors sued the company and its directors seeking to block the retailer’s $2.4 billion acquisition by Canadian department-store chain Hudson’s Bay (HBC) Co.
Hudson’s Bay, founded in the 17th century as a fur-trading company, agreed last month to pay $16 a share in cash, a 30 percent premium to New York-based Saks’s closing price on May 20, the day before reports emerged that Saks was exploring alternatives.
Shareholders Thomas Jennings and Samuel Cohen filed separate suits against Saks, its directors and Hudson’s Bay in New York State Supreme Court in Manhattan today, seeking to stop the acquisition, which Jennings said undervalues the company, given its “recent strong performance as well as future growth prospects.”
The transaction, which brings together the Hudson’s Bay, Lord & Taylor and Saks Fifth Avenue brands, creates a company that will operate 320 stores and have revenue of about $7 billion.
“Defendants have exacerbated their breaches of fiduciary duty by agreeing to lock up the acquisition with unreasonable deal protection devices that serve to prevent other bidders from making a successful competing offer for the company,” Jennings said in a court filing. “These provisions unreasonably inhibit the board’s ability to act with respect to investigating and pursuing superior proposals and alternatives, including a sale of all or part of Saks.”
Julia Bentley, a spokeswoman for Saks, didn’t immediately return a voice-mail message seeking comment on the suits. Tiffany Bourre, a spokeswoman for Hudson’s Bay, didn’t immediately respond to an e-mail seeking comment.
The deal is a coup for Hudson’s Bay Chief Executive Officer Richard Baker, 48, who over the past seven years has acquired and refreshed retail chains while leveraging their real estate. Saks will continue to be based in New York and retain its existing management, Baker said. While the newly merged entity will combine back-office operations to save costs, the three chains will retain separate buying operations so the merchandise will reflect each brand’s identity.
Hudson’s Bay is Canada’s largest department-store chain, with 90 stores selling goods including shoes, perfume, appliances and linen. Last year it generated about C$4 billion ($3.9 billion) in sales.
Saks rose (SKS:US) 0.4 percent to $16.14 at the close in New York and has advanced 54 percent this year. Hudson’s Bay increased 1.3 percent to C$17.59 in Toronto for a 5.2 percent advance in 2013.
Hudson’s Bay, founded in 1670 and based in Toronto, expects the deal to produce C$100 million in cost savings within three years. Saks hired Goldman Sachs Group Inc. in May to explore strategic alternatives, including a sale.
Hudson’s Bay is paying about nine times Saks’s earnings before interest, taxes, depreciation and amortization on an equity basis, compared with a median multiple of eight for similar deals compiled by Bloomberg.
The combined company will have 179 full-line department stores, 72 outlet stores and 69 home stores throughout the U.S. and Canada, along with three e-commerce sites, according to the statement. Saks has locations on Fifth Avenue in New York and Wilshire Boulevard in Beverly Hills, California, while Hudson’s Bay has properties in downtown Toronto, Vancouver and Montreal.
Saks had 40 days to seek bids from other suitors.
The cases are Jennings v. Arredondo, 652725/2013, and Cohen v. Saks Inc. (SKS:US), 652724/2013, New York State Supreme Court, New York County (Manhattan).
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