Canadian retailer Hudson’s Bay Company (HBC) has received confirmation from the Toronto Stock Exchange (TSX) that its application relating to private equity firm Rhône Capital’s US$500m (CAD632m) investment has been approved.
The news follows a series of transactions announced last month which will see Rhône Capital buy US$500m (CAD632m) of convertible shares in HBC, and partner with WeWork to form a joint venture – WeWork Property Advisors – to buy HBC’s Lord & Taylor building in New York for $850m (CAD1.08bn)
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Now, the retailer says it has received conditional approval from TSX for its application relating to Rhone’s equity investment in the form of eight-year mandatory convertible preferred shares, subject to customary deliverables on or before transaction closing.
Under the terms of the deal, the mandatory convertible preferred shares to be issued to Rhône are priced at CAD12.42, a premium to the closing price of CAD11.75 for HBC’s common shares on 23 October, 2017.
The preferred shares can be converted by the holder at any time, and HBC can force earlier conversion of the preferred shares into common shares if after three years, HBC’s stock price is at least 125% of the applicable conversion price for 45 trading days in any 60 consecutive trading day period, and after six years, if HBC’s stock is at least 100% of the applicable conversion price.
After eight years, the preferred shares will automatically convert into common shares based on the then-accreted value.
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By GlobalDataMeanwhile, HBC says Rhône’s minority equity stake does not represent control of the company and it expects the firm will hold a 21.8% voting and equity interest in HBC upon closing, at which point Rhône will have the right to nominate two members of HBC’s board of directors for election.
Rhône will not be required to vote for any person nominated by any shareholder, and HBC will not have any other voting agreements with any shareholder with respect to director elections or any other company proposal.
Along with the sale of the Lord & Taylor flagship, the transactions also include agreements to lease space to WeWork within select department stores, and the formation of a strategic alliance with WeWork to pursue future real estate transactions and monetisations.
The retailer says these transactions were “in the best interests of HBC” and were carefully considered by the company’s board. It adds a majority of its shareholders have already approved the transactions and it has obtained written consent in support of the Rhône investment from “sophisticated long-term shareholders” representing well over 50% of the outstanding common shares of HBC.
According to HBC, the partnership is expected to reduce its debt burden by CAD1.6bn and increase total liquidity by CAD1.1bn, which it says “positions HBC well in these challenging operating and financing conditions for retailers”.
