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Catalyst Capital Issues Press Release Commenting On Glass Lewis Recommendation Hudson's Bay Shareholders: Says Firm's Recommendation 'ignored all of the issues related to the creation of the Baker Group'

The Catalyst Capital Group Inc., on behalf of investment funds managed by it, ("Catalyst") today commented on the recommendation by Glass Lewis to Hudson's Bay Company (TSX:HBC) ("HBC" or the

Benzinga · 12/11/2019 14:10

The Catalyst Capital Group Inc., on behalf of investment funds managed by it, ("Catalyst") today commented on the recommendation by Glass Lewis to Hudson's Bay Company (TSX:HBC) ("HBC" or the "Company") shareholders in regards to the Company-sponsored share buyback (the "Insider Issuer Bid") outlined in the October 20, 2019 arrangement agreement (the "Baker Group Agreement") between insiders led by Mr. Richard Baker (the "Baker Group") and the Company. 

Gabriel de Alba, Managing Director and Partner of Catalyst, said, "Glass Lewis ignored all of the issues related to the creation of the Baker Group and buys into the threat that the take under proposed by that group is the only option.  It is somewhat shocking that they would turn a blind eye to all of the conflicts, manipulations and intentionally misleading and incomplete disclosures, particularly in this day and age."

Added Mr. de Alba, "ISS recognized these issues and called out the HBC Board and the insider group, led by Executive Chairman Richard Baker, for their egregious pattern of conflicts, misrepresentations and self-serving games.  HBC's independent directors need to step up and do their duty to protect shareholders and restrict the coercive and questionable efforts of Richard Baker.  We continue to maintain our superior offer and believe there are other alternatives to maximize shareholder value.  If the Board will not act in the best interest of all shareholders, Catalyst is prepared to seek Board change to ensure that the interests of minority shareholders are protected." 

In its December 6, 2019, report, ISS recognized the significant flaws with respect to the sale process, questioned the value of the Special Committee's contribution and lack of optionality the Special Committee created for the Company and concluded that there is no legitimate rationale for recommending the Insider Issuer Bid in light of a legitimate outstanding offer at a higher price.  

In its report ISS made the following conclusion and recommendation:1

"Catalyst Capital Group Inc., holder of 17.5 percent of common shares, has publicly opposed the transaction and has made an offer to acquire the remaining outstanding shares for $11.00 in cash per share.  The only defect identified by the board's special committee with the competing bid has been the opposition to Catalyst's offer from the continuing shareholders (who are likewise seeking to acquire the company, but at a lower price); the committee has not questioned the Catalyst proposal's financing or ability to win regulatory approval."

"Given that significant defects have been identified with the sale process, shareholders cannot be confident they are receiving maximal available value for their shares.  Although the special committee appears to have restricted its own ability to determine that $11.00 is in fact superior to $10.30 by agreeing to a narrow definition of a 'superior proposal' in the arrangement agreement, there is no legitimate rationale from a governance perspective for recommending that shareholders accept C$10.30 cash per share in light of what appears to be a legitimate outstanding offer to purchase the company at a higher price.  As such shareholders are advised to vote AGAINST the acquisition by the continuing shareholders."

Regarding the Special Committee, ISS said:

"It appears that the special committee handcuffed itself by recommending an agreement that defines a superior proposal as something that could never happen. If there is i) a controlling shareholder group that will not agree to sell its shares to any other party or allow the distribution of the proceeds from a sale of material assets, and ii) the special committee defines a superior proposal as one that is reasonably capable of being completed, and iii) agreement from the controlling shareholder is a necessary element of completing an alternative transaction, then shareholders must question whether the special committee has effectively tied its own hands."

"However, HBC was not a controlled company prior to the board's waiver of the Fabric standstill.  In fact, Baker's individual holdings account for 6.3 percent of HBC shares outstanding.  By waiving the standstill and allowing Baker to form a group controlling 58 percent of the voting power, the board appears to have sacrificed negotiating leverage in exchange for a proposal, in its own words, was inadequate."

Regarding Fabric Luxembourg (member of the Baker Group), ISS said:

"On Oct. 26, 2017, HBC shareholder Fabric Luxembourg entered a standstill agreement that limited its interest in HBC to no more than 45 percent of outstanding common shares.  The standstill agreement was confirmed most recently on July 17, 2018.  In engagement with ISS, the special committee indicated that Fabric Luxembourg sought HBC's consent for its participation in the shareholder group.  The board (with authorization from the special committee) waived the standstill at some point between March 26 (when the special committee was re-formed) and June 10 (when the C$9.45 proposal was made). Although the board has acknowledged to ISS that it granted the standstill waiver, investors who purchased shares prior to June 10, under the impression that Fabric Luxembourg was subject to a standstill, would likely have benefited from knowing when Fabric Luxembourg began considering a buyout and when the standstill was waived."

Regarding the Baker Group and the Signa transaction, ISS said:

"The initial unsolicited proposal was revealed on June 10, shortly after HBC announced its agreement to sell its portion of the European operations and assets it shared with SIGNA. In light of i) the materiality of the SIGNA transaction onto HBC's value, ii) the possible conflict of interest between Baker as executive chairman voting on an asset sale and Baker as unsolicited acquirer, and iii) the absence of a positive disclosure that members of the continuing shareholder consortium had no knowledge of the SIGNA transaction, it is reasonable that shareholders could question whether material nonpublic information was used to assemble the consortium of continuing shareholders. This concern must then necessarily lead to questions about the thoroughness of the sale process and whether the agreed transaction maximizes value for minority shareholders."

Catalyst has filed a notice of application for a hearing with the Ontario Securities Commission seeking redress for inadequate and inaccurate disclosure, and coercive and unfair practices leading up to and following the HBC Board approval of the Insider Issuer Bid. 

We urge shareholders to VOTE AGAINST the Insider Issuer Bid and all related proposals to be voted upon at the HBC shareholders' meeting scheduled for December 17, 2019 (the "Meeting"). Your vote matters. 

We thank shareholders for their strong support to date. The rejection of the Insider Issuer Bid is a key step for the maximization of shareholder value. Notwithstanding the threats of Mr. Richard Baker and the Company regarding declining share prices if we reject their proposal, we can act together to enhance shareholder value. 


If you have any questions, or need help executing your vote, contact Laurel Hill Advisory Group at: 1-877-452-7184 or 1-416-304-0211 or email assistance@laurelhill.com. There is a team standing by to assist you.