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Hudson's Bay Company



HBC goes Zucker

Soon it will be one big retail company called StoreCo, and it will own all the stores, but under different brands. But seriously, if this guy succeeds, you can say hello to Target (buying Zellers), and I would think the Bay would probably end up as a lot of Sears.
Takeover a new adventure for HBC
Gary Norris
Canadian Press
Friday, October 28, 2005

TORONTO -- Centuries before there was a country called Canada, there was the Hudson's Bay Co.

Incorporated in May 1670 as The Governor and Company of Adventurers of England Trading into Hudson's Bay, it concentrated on the fur trade during its first 200 years of existence.

"In order for us to understand the development of the Prairies, to understand relations between natives and non-natives, the Hudson's Bay Co. played such a tremendous role that we have to acknowledge it," York University history professor Marcel Martel commented Friday after the company received a $1-billion takeover bid by U.S. businessman Jerry Zucker.

"They were there because they wanted to take advantage of a lucrative business, the fur trade, and of course they relied heavily on natives, on voyageurs, French-Canadians."

The company's history is an epic tale of a private-sector exploration and exploitation of a large part of the continent -- and then an ongoing failure to fully profit from its assets, said Joe Martin, director of Canadian business history at the University of Toronto.

"There's this romanticism around the company, but the more you look at it, it's a story of lost opportunities."

In 1869, its vast chartered territory -- the region of northwestern Quebec, northern Ontario and western and arctic territories whose rivers drain into Hudson Bay -- was transferred to the two-year-old government of Canada.

In return, the company received 300,000 pounds in cash and about five per cent of the arable land in what now is Manitoba, Saskatchewan and Alberta.

"It's the biggest real-estate transaction in the history of the world, and nobody's heard of it," commented Martin.

After spending the 1880s selling Prairie farmland to settlers, the company turned to retail trade, building a chain of western Canadian department stores and later -- belatedly, in the 1960s -- entering the eastern retail market.

"There's a lack of reality around this" which has continued to the present day, said Martin.

"There are these cultures within organizations that last for an extraordinarily long time, and if the management doesn't take very real stock of it, they'll be captive to the culture."

Other ventures over the years included running oil and gas companies, engaging in property development and dabbling in businesses ranging from liquor distilling to travel agencies, credit bureaus and auction houses.

Meanwhile, the company continued to expand its retail operations organically and through acquisitions.

The most notable of those were the 1960 purchase of Morgan's department stores, the 1978 takeover of the Zellers discount chain, the 1979 purchase of the Simpsons stores, the 1990 acquisition of the Towers group, the 1993 takeover of the Woodward's department stores in B.C. and Alberta, and the 1998 purchase of Kmart Canada.

In 1979, the family of the late newspaper magnate Roy Thomson took over Hudson's Bay Co., beating out a proposal by George Weston Ltd.

The economic downturn of the early 1980s prompted HBC to shed non-core holdings and concentrate on its stores.

The Thomson family sold the last of its shares in 1997, and Hudson's Bay Co. returned to its historical status as a joint stock corporation with no controlling owner.

While it may be a grand old company, with almost 70,000 employees at more than 500 stores, Hudson's Bay hasn't been a notably grand investment in recent years.

In 1994, it reported net profit of $184.3 million on revenue of $5.8 billion.

Its 2004 profit was $60 million on revenue of $7.1 billion.

Its shares (TSX:HBC), worth $25 each a decade ago, topped out at $38 in September 1997, then fell to the $6 level three years ago.

They were around $9 when Zucker began accumulating a holding in mid-2003, and at $10.65 just before he disclosed his interest in December 2003.

On Thursday, the day before Zucker's $14.75-per-share offer, the stock was at $12.63.

The company's three-century trove of meticulous record-keeping has become a major store of information for historians, York's Martel observed, describing Hudson's Bay as one of the few companies that have shaped Canadian history.

"Not that I'm very nostalgic," he added. "Of course it's a business, but it's a business that has shaped and has influenced the lives of so many Canadians."

No easy fix seen for Zellers and Bay stores
Retail consultants say what's needed is a culture that will drive innovation
Saturday, October 29, 2005 Page B2

If Jerry Zucker is going to be able to turn around Hudson's Bay Co., he will have to take some drastic steps to rethink the company's flagship Bay and Zellers brands, retail consultants said yesterday.

Like most department stores, the Bay is caught in a vice-grip with Wal-Mart Stores Inc. on one side and specialty chains such as Home Depot and Winners on the other.

And Zellers is having a tough time competing with the Wal-Mart onslaught.

David Gray, a retailing consultant at Sixth Line Solutions in Vancouver, says the brands require a complete rethinking that goes far beyond introducing new clothing lines and tinkering with store layout.

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"It's not about the cosmetic outcome. It's not about saying the stores need to look different or the merchandise has to change," Mr. Gray said.

"I think right at the core of the business, there has to be some sort of change that builds in a structure and a process and a culture that will really drive innovation," Mr. Gray said.

Many observers expect that if Mr. Zucker is successful, he will break up the company and sell the pieces. But executives working for Mr. Zucker said yesterday that they like most -- but not all -- of HBC's current strategy.

HBC's management team has embarked on a five-year plan to expand its business.

Last year, some Bay stores introduced departments with designer products at discount prices, and its flagship Queen Street store in Toronto opened a grocery store.

The Bay also has an agreement with Federated Merchandizing Group -- the parent of U.S. department stores Macy's and Bloomingdale's -- that gives it the exclusive right to carry private brands such as Style & Co. in Canada.

Zellers has also introduced a number of exclusive brands including Cherokee, Alfred Sung Home and Stuff by Hilary Duff.

More recently, HBC began rolling out new-look Zellers stores with wider aisles, improved lighting and specialty areas such as grocery sections, enhanced cosmetic areas and takeout restaurants.

"The strategy's okay, but it needs to go beyond tweaking," said John Williams, a retail consultant at J.C. Williams Group.

"The concept needs reinvention. A department store is a grand old thing, but it doesn't excel at any one thing the customer wants."

Mr. Williams said he thinks Zellers is losing so badly to Wal-Mart that there's little hope for saving the brand. Instead, he expects Zellers to sell out, possibly to Target Corp., the U.S. retailing giant that specializes in "cheap chic" designer goods.

Mr. Williams thinks there's more hope for the Bay, but said there's no easy fix.

Department stores around the world are getting squeezed from the top and the bottom. Still, the size of the Canadian market prevents the Bay from being able to move too dramatically up-market, Mr. Williams said.

"There's not enough people in that income bracket to become a Bloomingdale's or a Nordstrum," he said.

"At the same time, they can't go down-market because the guys from Bentonville [Wal-Mart] will chew 'em up and spit 'em out. It's a very tricky situation."

All retail consultants seem to agree that HBC needs to get smaller. In particular, downtown Bay stores are far too large, with the Toronto Queen Street store occupying 809,000 square feet. "How do you fill one million square feet on Queen Street? How do you find enough fashion to go in there?" asked retail consultant Wendy Evans.

She says the Bay could move more upscale in some of Canada's biggest cities, and needs to do more in streamlining its product mix.

As for Zellers, Ms. Evans sees it becoming more like Target, which has thrived in the United Sates alongside Wal-Mart.

"To win against Wal-Mart is not what they want to do. They don't want to go head-to-head in terms of price and brand," Ms. Evans said.

Mr. Grey said that by taking HBC private, American businessman Jerry Zucker would be able to avoid the pitfalls of pleasing investors quarter by quarter and make the long-term investments necessary to reinvent the department store for a Canadian audience.

"At the end of the day, you have to ask: If a concept has played out its lifespan, is making some incremental changes really going to save you or is it just going to prolong the situation?"

Mr. Gray says HBC needs to recruit people from outside of the traditional retail ranks -- people with big ideas in areas such as marketing, technology and customer relationships.

"I think there is an opportunity to really rethink the department store. Wal-Mart obviously did that but you don't want to go out and just copy Wal-Mart."

Reinventing an icon

HBC's brands need to evolve to survive. While management is taking steps to turn the stores around, retail consultants say more drastic changes are needed.

HBC five-year profit and revenue

Sales ($billion)

2001: $7.3

2002: $7.4

2003: $7.3

2004: $7.3

2005: $7.1

Profit ($million)

2001: $90

2002: $47

2003: $85

2004: $60

2005: $60

The BayCategory: Department store targeting middle- to upper-income customers who are fashion and value conscious.

Locations: 98 stores

Store size: Ranges from 16,000 square feet in Banff to 809,000 square feet in downtown Toronto.

New concepts

In 2002, entered into exclusive agreement with Federated Merchandising to stock clothing offered at Macy's and Bloomingdales.

In 2004, introduced "Style Outlets," smaller stores within the Bay featuring designer label merchandise at discount prices.


Category: General merchandise store targeting women between 25 and 55 who shop frequently for staple clothing and household needs.

Locations: 298 stores.

Store size: Range from 48,000 square feet to 161,000 square feet with an average size of 97,000 square feet.

New Concepts:

In 2004, Zellers launched Hilary Duff's new line of merchandise "Stuff by Duff."

Zellers is renovating stores to a new prototype format with wider aisles, improved presentation and new product offerings.

Home Outfitters

Category: A kitchen, bed and bath superstore focused around everyday low pricing.

Locations: 47 stores.

Store size: Range from 27,000 to 42,000 square feet.

Location: Canary Wharf
Posts: 7,740
Oct. 29, 2005. 08:46 AM
Just what is Jerry Zucker's game?

What's his game?
Jerry Zucker is an unlikely saviour for a Canadian retailing icon that surely needs one. If Hudson's Bay Co. is to continue as a retailer.
When Zucker, a South Carolina merchant banker, first began accumulating his 18.8 per cent stake in HBC, his plan seemed merely to goose the value of his investment by raising hopes of an auction of the chronically ailing retailer.
That ploy didn't work. HBC's performance has continued to disappoint, and things are so bad the firm has chosen to no longer give "guidance" to the Street on anticipated future results. And no wonder: the company has consistently failed to meet its targets, quarter after quarter and quarter.
If its approach to merchandizing wasn't so unremarkable — it fits nowhere on the spectrum of the dull-but-safe Reitmans or the exotic Selfridges, which experiments with instore rock-concert halls and tattoo parlours — HBC could be a case history in anti-retailing. Analysts fault HBC for poor execution, as Zucker did yesterday. But how could the company not fail to execute on strategies that are so muddled in the first place?
HBC has two potential powerhouses — its Zellers discount chain and its Bay stores, both badly in need of rejuvenation. So, under the direction of chief executive George Heller, to what has HBC devoted its time? Why, going head-to-head with Home Depot, Restoration Hardware and their ilk with his fledgling Home Outfitters chain (a name that suggests a cross between a drapery store and a bait shop), a fledgling Designer Depot chain predestined to fail against an entrenched Winners; and, most recently and incredibly, an overhaul of its small-town Fields general stores, which account for all of 2 per cent of HBC's total revenues.
Meanwhile at Zellers, which accounts for about two-thirds of HBC's sales, a dawdling HBC has so far gotten around to renovating just 60 per cent or so of the discounter's outlets.
To mask its strategic miasma, HBC is unrivalled in summoning excuses: Volume is habitually sabotaged by unseasonably hot or cold weather. Back-to-school sales were slower than expected. Soaring oil prices will dampen pre-Christmas sales this year, Heller warned in August; and a new computer system has wreaked havoc with inventory controls.
Robert Johnston, frontman for the elusive Zucker, effusive in his praise of Heller two years ago, finally threw up his hands in despair in an interview a few months ago — a distant early warning of yesterday's bid which, if successful, could put Heller on the street.
There's no question that on some level, Heller, 57, has become delusional after six years at the helm. At the June annual meeting, he told reporters asking the inevitable question of how HBC means to counter the Wal-Mart threat that, "There have been the equivalents of Wal-Mart before and nobody remembers their names."
Let's assume for a moment that the world's largest corporation, with $288 billion (U.S.) in sales, doesn't up and disappear, as Heller seems to anticipate. What are Zucker's options then, as sole owner of HBC?
Game Plan A: With his Friday bid for all of HBC, Zucker triggers an auction, happily tendering his 18.8 per cent stake to the highest bidder. Well, good luck. The widely held HBC has for years been a sitting duck for reputable North American retailers who've found better things to do than take on the mess at HBC.
Game Plan B: Zucker, 55, follows through on his vow yesterday to take the reins at HBC and "enhance operational effectiveness and shareholder value."
Uh, no. With zilch merchandizing experience, Zucker is not about to succeed where Don McGivern, George Kosich, Bill Fields and George Heller have failed. He could recruit Paul Walters, a turnaround whiz at Sears Canada before leaving the company after stumbling with a failed Eaton's makeover. But HBC is such an incoherent congeries of good and lousy store locations across the entire country, and of promising and dud retail banners, that it could take even the Henry Ford of retailing at least half a decade to figure out how to make it all work.
Game Plan C: Bust up the 335-year-old company, parcelling out its 500-plus locations to expansion-minded Winners, H&M and Williams-Sonoma, and to U.S. retailers potentially interested in cracking the Canadian market, including Target and Crate & Barrel. But, alas, Zucker has not proved himself as an asset stripper, either, having steered his Polymer Group Inc. textile conglomerate into bankruptcy protection in 2002.
When Zucker first popped up on the Canadian scene in December 2003, I wished he was for real. HBC occupies too much of the retail landscape, taking up space from which more deserving merchants should be peddling their wares.
But judging from his cursory bid yesterday — not really a bid, even, but phrased more as an expression of interest — one can't help thinking he still isn't for real. There are people skilled in this game, scavengers like Wilbur Ross and Carl Icahn, who strike decisively and have their way with their prey rather than futzing about for two years as their investment languishes.
Zucker falls into the latter camp. I still don't think he's for real.

Oct. 30, 2005. 10:04 AM
With a suitor on the prowl, time seems to be running out for the world's oldest continuously capitalist enterprise still in operation

In its 335-year history, the Hudson's Bay Co. has never come so close to facing its demise as it does today.
The only thing that has spared it from being merged out of existence or dismantled by now, ironically enough, is the same chronically poor financial performance that has kept it unattractive to potential buyers among its peer retailers, and now makes it vulnerable to a scrapyard dog.
Respected merchant bankers, including Gerry Schwartz's Onex Corp. in Toronto and renowned U.S. buyout specialist Kohlberg Kravis Roberts, have kicked the tires at HBC, but neither they nor mooted buyers among America's retail giants, including Target Corp. and Federated Department Stores (owner of Macy's and Bloomingdales), have shown more than a passing interest in HBC.
Which leaves HBC open to the predations of Jerry Zucker, a secretive South Carolina merchant banker with no retail experience, who last Friday announced his intention to buy the 80 per cent or so of HBC shares he does not already own.
Zucker began accumulating HBC shares two years ago in hopes of putting the company in play, but while his mere arrival and the prospect of a bidding war for HBC did generate a nice bounce in the stock, no bidding contest materialized, and HBC's financial performance has continued to disappoint.
So Zucker has taken the next step of attempting to buy the whole company — only the beginning of what is probably the last chapter in the history of the world's oldest continuously capitalist enterprise still in operation.
HBC once held sway over a region 10 times the size of the Holy Roman Empire at its height, and exerted more influence in shaping North America than peers like the East India Co. did in India and China.
The bravado of HBC explorers like Samuel Hearne, the first white man to reach the Arctic Ocean, is legendary; they eventually laid claim to three million square miles, or one-quarter of North America's land mass, spanning the Far North to San Francisco. Their presence discouraged American settlement of present-day Western Canada; and three HBC trading posts — Fort Garry (Winnipeg), Fort Edmonton, and Fort Victoria — became provincial capitals.
But HBC, like the CPR and Canada's early banks, recruited heavily from Scotland, which in the view of the definitive HBC biographer Peter C. Newman explains the primacy of prudence over commercial zeal that ultimately led to HBC's current vulnerability.
"The original implanting of that special [Scottish] mentality within the Canadian psyche, a combination of creative deference and cautious progressive pragmatism, is the Hudson's Bay Co.'s most pervasive legacy," Newman wrote in Company of Adventurers (1985), the first installment of his three-volume history of HBC.
"This orderly attitude, rooted in collective survival rather than individual excellence, still colours what most Canadians do and, especially, don't do."
By the time HBC sold its massive northern and western Canadian territories to the three-year-old Canada in 1870, the company was fast losing its relevance. A more entrepreneurially minded group of absentee owners at HBC headquarters in London might have better exploited the firm's considerable remaining oil and gas, real estate and liquor distribution assets. But they chose instead to sell majority interests in most of their operations — trading posts and urban stores excepted — to savvy outsiders, and retain only a passive minority stake.
Yet even as the great firm was rapidly shrinking, a complacent, debilitating arrogance dating from HBC's glorious past lingered.
"The Hudson's Bay people used to tell me how proud they were to be the oldest company in the Western hemisphere," Newman quotes L.F. McCollum, the American oilman whose Continental Oil bought a majority stake in and took control of Hudson's Bay Oil and Gas Ltd. "And I'd tell them, `So what? What have you done? Continental Oil [now ConocoPhillips] is only 25 years old and our assets are worth 10 times as much as yours, so please don't brag to me." (HBC has assets today of $4 billion Canadian; ConocoPhillips has assets of $93 billion U.S.)
HBC still clings to the status of Canada's largest chain of department stores. And, particularly in Western Canada, where its retail roots are deepest, commands a degree of patriotic loyalty.
But in recent decades, HBC has been reduced to a motley collection of some 500 stores under about half a dozen banners, none a leader in its retail segment, and all fighting a losing battle for market share against interlopers like Wal-Mart, Gap, Williams-Sonoma, Winners and Talbots, and homegrown rivals Reitmans, Roots, Sleep Country and Mountain Equipment Co-op.
It is HBC's misfortune that traditional department stores have been losing favour for years. The demise of Gimbels, Marshall Field, Filene's, B. Altman and Bonwit Teller is some indication of what HBC's mid-market Bay stores are up against.
Remarkably, HBC's fortunes have continued to slide despite the demise of rival Eaton's and the intensive-care status of Sears Canada, in addition to HBC's own contribution to the thinning of the ranks with its acquisitions of Morgans, Simpsons, Zellers, Towers and Woodwards, among others.
That Wal-Mart Canada Corp., starting from scratch in Canada only a decade ago, now has revenues 76 per cent higher than HBC's $7.1 billion in sales, speaks to the failure of HBC to adapt to retail trends.
As recently as last June's HBC annual meeting, CEO George Heller seemed to dismiss Wal-Mart as, if not a passing fad, then a phenomenon that HBC would handily survive just as HBCers endured the rigours of the Franklin expedition (by resorting to cannibalism, among other things).
Heller's six-year tenure has been marked by incrementalism — gentle stabs at cost-cutting, better inventory control, the launch of niche banners like Home Outfitters and Designer Depot, and the occasional coup as when it wrested the Olympic-apparel franchise from Roots.
Meanwhile, though, HBC's true revenue engines, Zellers and the Bay, have languished. The respected Dayton-Hudson Co. of Minneapolis saw the light long ago, dumping all its banners save its youngest, discounter Target, around which it rebuilt the entire company to the point of taking that division's name for its own.
Like Target, Zellers could possibly hold its own against Wal-Mart in Canada were it to adopt Target's cheap-chic formula. Instead, even the modest remodeling campaign underway at Zellers, bearing no resemblance to the total reformulation that's actually needed, is only half-completed years after it began. Such is the effect of Heller's divided attention among his many banners.
Jerry Zucker, 55, is not a merchant but a conglomerateur with interests ranging from factories that make diapers for Procter & Gamble Co. to a 25 per cent interest in the minor-league South Carolina Stingrays hockey club. A math major and scientist by training, Zucker holds 280 patents, but not in the retail field.
The most likely outcome for HBC, assuming Zucker follows through with his offer to acquire HBC and is not trying once again to merely trigger a bidding war, is the installation of a Heller replacement who, to succeed, would have to reduce the firm to its essential parts — namely, Zellers — and remake it into a thriving retail concept like Target, Winners or H&M.
Failing that, Zucker will have to bust up the company and sell its lucrative credit-card operations, its land and leases.
That would be no tragedy. It would free up millions of square feet of selling space for merchant entrepreneurs more innovative and less risk-averse than successive generations of HBC managers.
John Wanamaker of Philadelphia, greatest U.S. drygoods merchant of his era in the early decades of the 20th century, foresaw endless possibilities within easy reach of any persistent striver. "The universe is sensitive to the merest touch and therefore it is possible to set wheels in motion that shall outrun the world," he said.
That was the bug that infected Sam Walton when he first pitted himself against the giant Sears, Roebuck, J.C. Penney and Kmart Corp. in 1962, leaving those rivals in his dust by the time of his death in 1990.
From the rubble of HBC when Zucker, or some other future buyer is done with it, will rise men and women with ambitious schemes who will face doubters, as Timothy Eaton once did.
Whether they succeed or fail, though, in occupying retail space once claimed by HBC, they will fare better than an HBC behemoth that has spent so much of its history watching the world pass it by.
I don't know if Jerry Zucker can save the Bay but I'm a big fan of the Airplane! and Naked Gun movie franchises so I'm willing to give him the benefit of the doubt.

He should bring in Leslie Neilson and O.J. Simpson to do a new TV campaign.
Indense, you get bonus points for that post! ("Top Secret" there is a movie!!).
Other bidders expected to circle HBC
Sunday, October 30, 2005 Posted at 10:13 PM EST
From Monday's Globe and Mail

Jerry Zucker hasn't even filed a formal bid for Hudson's Bay Co., and analysts and investors are already talking up the likelihood of another offer for North America's oldest retailer.

With HBC now in play, a long list of potential buyers will once again take a look at the company that owns the Bay, Zellers and Home Outfitters. Some analysts believe the company could be worth up to $30 a share and the roster of possible bidders includes U.S. department store operators, Canadian pension funds and private equity firms. The question for many will be whether HBC is worth more intact or in pieces.

Last week, Mr. Zucker, a South Carolina businessman, announced plans to offer $1.1-billion for HBC and said through a spokesman that he had no plans to chop up and sell off HBC's various assets.

Mr. Zucker, who already owns about 19 per cent of the company's shares, said he would bid $14.75 a share for HBC through his company Maple Leaf Heritage Investments Acquisition Corp. On Friday, HBC shares closed at $15.35.

Robert Johnston, a vice-president at Mr. Zucker's U.S.-based InterTech Group Inc., has said Mr. Zucker would consider raising the hostile offer if he is given a look at the company's books and finds it is worth more.

In a letter sent Friday to HBC chief executive officer George Heller, Mr. Zucker himself held out the prospect of a sweeter bid.

Wendy Evans, president of Evans & Co. Consultants Inc., said other possible bidders could include Federated Department Stores Inc., which recently took over rival May Department Stores Co. in a $11.9-billion (U.S.) merger.

“They have such wonderful real estate,†Ms. Evans said of HBC, adding the property assets make HBC attractive to a wide range of suitors.

John Chamberlain, an analyst with Dominion Bond Rating Service, said HBC's real estate assets have a book value of $250-million (Canadian), but conceded the market value is much higher.

A recent CIBC World Markets report pegged the value of the HBC-owned real estate at up to $770-million, and consequently, there is concern Mr. Zucker plans to gut the retailer of those lucrative assets.

“At this point, we're not entirely convinced that Mr. Zucker and his Maple [Leaf] Heritage Investments has a long-term strategy to run the business,†Mr. Chamberlain said. “The danger for bondholders at this point is that there is no protection if any potential acquirer should strip out assets, including the credit card operations, the real estate or any of the other hidden assets within HBC.â€

Some retail consultants say financial players, many of whom have already taken a long hard look at HBC, could be poised to swoop.

“I would not expect ... that it would be done on a single offer,†said retail consultant Maureen Atkinson, senior partner at J.C. Williams Group Ltd.

“Canadian pension funds may take a look at it. [They] probably would do it in partnership with a venture capitalist,†Ms. Atkinson said. “KKR [Kohlberg Kravis Roberts & Co.] has done very well with their investment in Shoppers Drug Mart and maybe are looking at that.â€

There has even been talk of combining HBC with the assets of Sears Canada Inc.

Earlier this month, HBC said it would sell its credit card division, which analysts have said is worth up to $700-million. The move accelerated Mr. Zucker's plans to bid for HBC.

On Friday, HBC said it would assess Mr. Zucker's offer and make a recommendation to its shareholders but offered no timelines.

However, in an internal letter to staff, Mr. Heller suggested that while management and the board were not pursuing a sale, a “change of ownership is not necessarily a negative development and does not automatically mean a change in our current strategic direction.â€
Oct. 31, 2005. 06:08 AM
Trouble in the aisle
The Hudson's Bay Company isn't alone among retailers struggling as they attempt to meet the challenges of an ever-changing business environment

Here's the problem for the Bay.
Even people who feel strongly about its heritage — who identify the Hudson's Bay Company with the fur trade and the founding of Canada — don't shop at its namesake department store chain.
So, they have very mixed feelings about last week's announcement that an American financier has made a $1 billion bid to buy the Canadian retail icon, a move that could spell dramatic changes at the troubled company that operates the Bay, Zellers, Home Outfitter and Designer Depot.
"I think it's a big part of Canadian history, so I don't know if it's right to sell it," says 14-year-old Noëlle Nurse, standing outside the flagship downtown Toronto Bay store on Queen St. W. with a group of friends. "But I don't shop there."
"They need to change," Nurse says, adding the store needs to do more to attract young people with louder, hipper music and edgier décor. "They could make it better."
"It's pretty historic," 22-year-old Beth Evans says of the Hudson's Bay Company. But she rarely shops at the Bay stores, except occasionally for makeup. She views the stores as appealing to older consumers. "My mother will be devastated."
But HBC's problems aren't confined to its 98 Bay stores. Its discount department store chain, Zellers, is also struggling for many of the same reasons that department stores across North America are languishing.
In an era dominated by big box retailers, like Home Depot, and the world's biggest discounter, Wal-Mart, the traditional department store has lost its relevance to consumers, says John Williams, a consultant with J.C. Williams Group Ltd.
Since 1995, an onslaught of new format U.S. retailers has gradually chipped away at the traditional department stores' turf, leaving them with little more than clothing and some housewares to sell. Consumer electronics was the first to go, followed by home furnishings.
The trend isn't confined to Canada or to HBC — one of the last two department store operators still in business north of the 49th parallel, the other being U.S. controlled Sears Canada Inc. The list of chains that has disappeared over the last four decades includes Eaton's, Simpsons, Kmart, Woodwards and Towers.
Consider the experience over the weekend of Scarborough shopper Gina Dacanay, a mother of three who had been all over town looking for Halloween costumes that didn't break the budget.
She went first to Wal-Mart, where nothing was left in the right size, and then to costume specialty retailer Party Packagers, where the prices were too high.
"Thirty five to forty dollars? That's too much for one night. And I have three kids to buy for," says Dacanay.
Finally, she went to a Zellers store — "Truly Canadian," as the sign outside proudly proclaims — because the costumes are on sale at 40 per cent off.
Does it matter to her whether it's Canadian owned or not? "Not really," she conceded, somewhat embarrassed. "As long as I still have a lot of choice."
But there was little left to choose from in the Zeller's customer department yesterday. "Maybe it's too late," says Dacanay.
The same could be said for Hudson's Bay, which is now in play after a $800 million bid by Jerry Zucker.
The company missed expectations in each of the last three quarters, losing $8.3 million as sales fell 1.5 per cent to $1.6 billion in its latest three months. Meanwhile, Wal-mart has grown to be Canada's largest general merchandiser, with an estimated $11 billion a year in sales, and just over 50 per cent of the market.
It didn't help that department store retailers completely missed the new trend in shopping mall development that saw open air power centres replace enclosed regional malls in the fast growing suburbs.
Hudson's Bay finally entered the power centre segment in 1999 with a specialty bed and bath concept called Home Outfitters, the only profitable and growing chain in the company. More recently it began adding a second concept called Designer Depot, specializing in off-price fashion, much like Winners.
But it hasn't solved the problems at the Bay or Zellers.
Geography is only one of the ways shopping patterns have evolved. Consumers are no longer loyal to a single store or brand. Instead they shop according to what they value, studies by the market research group NPD shows.
That can mean mixing a cheap T-shirt from Wal-Mart with Prada shoes and designer jeans. What has been lost is the mass middle market, the one department stores have traditionally occupied.
As part of a five-year turnaround plan HBC articulated two years ago, the company began carrying more private-label merchandise and exclusive brands to take the focus off price, where it can't compete with Wal-Mart's image as the low-price leader.
Zellers is gradually moving upmarket with furniture by Alfred Sung and fashionable clothing from Tres You, in a bid to emulate Target Corp., the one U.S. discounter that has managed to compete with Wal-mart.
At the Bay, the company has added exclusive furniture lines along with more off-price designer merchandise that appeals to consumers' desire for a good deal.
But much of it seems to be lost on Canadian consumers, increasingly distracted by new European retailers, like H&M, who use celebrities to flog their "cheap chic" gear.
"I definitely care if (an) American buys too much of Canada," says 30-year-old Ian Gardner, standing at the bus stop outside the Bay's Queen St. store yesterday. "It's a cultural thing."
At the same time, all he buys at the Bay is basics like underwear.
Similarly, Ralston Bennett, 58, says, "I wouldn't want it to close. It's a landmark." But, like the others, he only shops at the Bay two or three times a year.
But Robert Banks, 50, says that if the business isn't thriving, it's because the company has done a poor job of adapting to changing times.
Nov. 5, 2005. 01:00 AM
More jobs cuts likely at HBC, analysts say
Galloway to head special committee

Retail icon fights hostile takeover

Hudson's Bay Co. will likely make future job cuts in its merchandising group, industry watchers speculated yesterday, a day after the retailer announced it was eliminating 825 management positions.
That conjecture came as the Toronto-based retailer announced that David Galloway, a former CEO of Torstar Corp., is chairing a special committee struck to assess a hostile takeover offer from a wealthy American industrialist who is the Canadian retailer's largest shareholder.
"I think there probably will be more (cuts)," said Richard Talbot, president of Talbot Consultants International Inc. in Unionville, Ont. "It is an incredibly bureaucratic organization and somebody with a very sharp knife needs to get in there."
Canada's biggest department store operator, and the country's oldest company, announced a streamlining of its management ranks Thursday, saying it was seeking annualized savings of $40 million to $45 million.
The company, target of a $1 billion takeover bid by U.S. investor Jerry Zucker, will assume a pre-tax restructuring charge of approximately $28 million in its fiscal third quarter to reflect severance.
HBC Merchandising Group, which does the buying for HBC's Bay and Zellers banners, was reorganized last February and underwent a ``handful of changes" as a result of Thursday's announcement, the company said.
Nevertheless, Talbot predicted more cuts to back office staff and outsourcing would be used to trim expenses, possibly to entice rival bids.

Zucker calls for Zellers closings
Friday, November 11, 2005 Posted at 4:57 AM EST
From Friday's Globe and Mail

Jerry Zucker wants to close some money-losing Zellers stores, sell off the downtown Toronto head office of Hudson's Bay Co. and invest $375-million to polish store operations.

As part of his formal, $1.1-billion offer for HBC, the wealthy U.S. financier outlined his blueprint for Canada's oldest company.

The documents, filed with regulatory authorities yesterday, reveal that Mr. Zucker, with almost 20 per cent of HBC shares, was flatly turned down by the HBC board of directors when he asked last May for two seats on an expanded, 14-member board.

"We would have had the best interests of shareholders at heart," Robert Johnston, vice-president at Mr. Zucker's South Carolina InterTech Group Inc., said in an interview. Most of the current board members own relatively few, if any, HBC shares compared with the would-be owner.

The offer paints a picture of a U.S. businessman who sees potential in HBC, which runs the Bay, Zellers and Home Outfitters.

But the offer also shows Mr. Zucker to having been rebuffed every step of the way as he has tried to take more control of the decision making at HBC.

He says that he would pursue much the same strategy as HBC has now, but try to improve store presentation and behind-the-scenes technology. And he would rent out space to popular retailers within some of the HBC stores to draw more customers.

Nevertheless, his plans for HBC, which has more than 500 stores, may change if more information becomes available, the documents add. Observers believe he ultimately would break up the company and unload its parts. His offer expires on Dec. 29.

Mr. Zucker, who first started buying HBC shares in mid-2003, offered in August of 2004 to buy the company for $15.50 a share -- higher than the current $14.75-a-share bid, the documents disclose. He made the proposal in a letter to the board of directors.

Three weeks later, on Sept. 7, chief executive officer George Heller replied by letter, saying the company was "not for sale," the latest offer says. "The board of directors had concluded that 'it would be inappropriate and unwarranted to give anyone access to confidential data regarding [HBC] under the circumstances.' "

HBC spokesman Rob Moore said in an interview that the board will formally respond by Nov. 25, as required. But "there are items in there we would consider to be inaccurate."

He didn't explain why Mr. Heller, rather than the chairman of the board, had responded to the 2004 offer on behalf of the board.

HBC's chairman, or "governor," is Yves Fortier, an influential Montreal lawyer and former ambassador to the United Nations.

In August, 2004, Mr. Zucker wanted to run HBC with the key management personnel in place, the offer says. Asked yesterday whether Mr. Zucker would still keep the executive team, Mr. Johnston did not reply directly. He said Mr. Zucker would have to meet with management and see if its "goals and interests" were in line with those of the new owner.

Mr. Johnston added that, at the time, Mr. Zucker had high praise for management and its strategy. But since then, he has become increasingly disappointed with the financial performance of HBC, and "the inaction of management and the board of directors of HBC to take effective steps to maximize shareholder value," the offer says.

Last week -- six days after Mr. Zucker made his intentions known -- HBC cut 825 employees from its 70,000-strong staff and reshuffled the top executives, a move aimed at saving up to $45-million in annual costs. The company has struggled to make financial improvements over the past several years.

Mr. Zucker would pour $125-million a year in each of the next three years into improving HBC's operations, Mr. Johnston said yesterday.

Mr. Zucker generally backs HBC's strategy of store modernization, expanded sales of big-ticket items, such as furniture, and the development of new businesses to capture the emerging "off-price" market, the offer says. Off-price retailing is led by the Winners chain in Canada and entails selling popular brands at a discount.

But Mr. Zucker "believes that there are a variety of other strategies that need to be implemented in order to build value and position HBC to compete in today's changing retail environment," it says.

Divesting the Toronto head office could fetch more than $100-million, some analysts have said.

Late last week, the HBC board set up a special committee, headed by board member David Galloway, to weigh its options. Mr. Galloway, a former Torstar Corp. executive, is chairman of Bank of Montreal, which is the parent of BMO Nesbitt Burns, the offer noted. It is advising HBC in both Mr. Zucker's bid as well as the sale of its credit card division.

HBC's decision last month to put the lucrative credit card business up for sale was the final straw that prompted Mr. Zucker to make his bid, Mr. Johnston has said.

On the Toronto Stock Exchange yesterday, HBC shares slipped 6 cents to close at $15.25.
HBC rejects Zucker's hostile bid
Board urges investors to postpone making a decision
Holding discussions with other `interested' parties, it says
Nov. 26, 2005. 10:49 AM

Canada's oldest retailer says it is in discussions with "a number of interested parties" — which could include a possible financial bidder — about alternatives to wealthy American industrialist Jerry Zucker's hostile takeover bid.
The board of directors of Hudson's Bay Co. also formally rejected Zucker's $1 billion offer yesterday, as expected, saying it undervalues the company.
In a circular to shareholders, HBC urged investors to delay making a decision on Zucker's bid, to give it more time to come up with a better offer.
Hudson's Bay said it's in discussions with several parties who have signed confidentiality agreements and are now looking at the company's books.
"The board is working very hard to attract superior offers for the company," said David Galloway, who chairs the special committee HBC's board struck to explore ways of boosting its share value.
Galloway declined to provide further details as to who these parties are, or what parts of the business they are interested in. He denied rumours there could be a management-led buyout, but he didn't rule out a financial bidder who could include the management team in its offer.
However, "it's too early for that," he cautioned.
HBC's board declined to offer its own estimate of the company's worth, though one major HBC investor has pegged it at $20 a share. Zucker has offered $14.75 a share.
Zucker's spokesperson, Robert Johnston, called the board's response to its Oct. 6 offer a delaying tactic.
"We are obviously very dissatisfied with this response," Johnston said in an email message. "Instead of negotiating with us, they have opted to criticize the bid."
Johnston also dismissed HBC's plans for maximizing shareholder value.
Since Zucker began stalking the retailer, HBC has put its profitable credit card business up for sale and cut 825 employees. But its retail business continues to struggle as its Bay and Zellers' chains lose market share to rival discounters and specialty merchants.
"HBC has spent hundreds of millions of dollars over the past few years on capital improvements, has had at least two series of layoffs, reorganized management roles and announced a major five-year plan, yet the results are materially worse than before," Johnston said.
HBC's board said Zucker's offer undervalues the company when compared to other recent sales of similar North American retailers.
It fails to recognize HBC's unique and "iconic" status as Canada's oldest brand with sales of $6.7 billion last year at 566 stores, and the fact it is an Olympic sponsor and outfitter.
The bid fails to take into account the growth potential at HBC's two newer chains, Home Outfitters and Designer Depot, the board said.
As well, it undervalues HBC's attractive real estate and profitable credit card business, the directors said.
The stores' recent poor performance is mainly due to one-time events, including higher fuel prices and glitches in a new computer system, the directors added.
Still, some analysts said they doubt HBC will succeed in attracting rival offers.
"I was surprised there were any third parties to talk to," said Bob Gibson, an analyst with Octagon Capital Management.
"I don't think there is another bidder," said Ted Whitehead, portfolio manager at Elliott & Page Ltd., which owned 385,436 HBC shares, about half a per cent of the outstanding shares, last June.
"This company has value only if someone can operate the stores profitably. The current management team has had five or six years to try and do that. Clearly they haven't," said Peter Holden, an analyst at Veritas Investment Research Corp.
Still, the prospect a so-called "white knight" may emerge to save Canada's oldest company has kept HBC shares trading slightly above the value of Zucker's bid. The shares closed unchanged at $15.09 yesterday.
HBC also disclosed it has entered a credit card co-branding agreement with a major bank that gives the bank first right of refusal to buy its card business.
Onex, developer eye HBC bid
Deal would keep retailer in Canadian hands; rival offer could come from U.S. firms, RioCan
Tuesday, January 17, 2006
From Tuesday's Globe and Mail

Takeover powerhouse Onex Corp. has teamed up with shopping centre developer Mitchell Goldhar to seriously consider making a joint bid for Hudson's Bay Co., industry sources say, a prospect that would keep the retailing icon in Canadian hands.

As well, U.S. private equity firm Cerberus Capital Management LP is mulling an offer for HBC in partnership with RioCan Real Estate Investment Trust -- a key Canadian rival to Mr. Goldhar's First Pro Shopping Centres Inc. -- and Kimco Realty Corp. of New Hyde Park, N.Y., the sources say.

The groups are in various stages of doing due diligence to see whether they can top South Carolina financier Jerry Zucker's $1.1-billion hostile offer for the department store operator, which owns the Bay, Zellers and specialty chain Home Outfitters.

Two other parties have been in the recent race for HBC: One is composed of financial firms Bain Capital LLC and Gordon Bros., both of Boston; the other is investment company Sun Capital Partners Inc. of Boca Raton, Fla. The latter may have recently bowed out of the competition, some say.

"It's a challenging thing," one source familiar with the talks says.

The presence of the country's two largest big-box mall developers among those chasing a stake in Canada's oldest merchant underlines the importance of HBC's real estate in any potential deal.

The company's prime sites across the country would give a new owner the opportunity to shrink HBC considerably and find other retailers -- such as giant discounter Wal-Mart Canada Corp. -- to assume many of the store leases.

First Pro, which helped Wal-Mart Canada set up shop in this country, has worked closely with the retailer and formed a joint venture to develop some of its Canadian sites.

Hillary Stauth, an HBC spokeswoman, said the company couldn't comment, adding "we've got a robust auction process under way."

Some suggest that the Cerberus-RioCan-Kimco camp has tried to lure the savvy U.S. discounter Target Corp. to come to Canada and operate its stores at the best HBC locations.

RioCan is the single largest landlord of Zellers outlets, and Target has considered in the past a deal that would see some Zellers stores converted to Target.

But sources doubt that Target would come any time soon, although it may eventually after a deal were done.

As such, the race between First Pro and RioCan is a compelling one, observers say.

"These guys are extremely aggressive, and direct competitors with one another," one industry insider says. "It would spice it up for everyone . . . It would be very interesting."

He predicted that First Pro would convert some Zellers and Bay stores to Wal-Mart superstores.

Mr. Goldhar, owner and chief executive officer of First Pro, would not comment, nor would an official at Sun Capital, which has an interest in a number of U.S. retailers. Others believed to be involved in the discussions did not return telephone messages.

Wal-Mart Canada is on the cusp of a major expansion in this country. It plans to roll out massive supercentre-like stores in Canada, beginning at the end of this year or early 2007, carrying a wide array of products and services, including a full supermarket.

Sources said Onex and Mr. Goldhar would be equal partners in the proposed HBC takeover company, and be extremely "hands on" in operating Zellers and the Bay.

The Onex-Goldhar team would probably close a number of the almost 400 Zellers and Bay stores and find other retailers to take the space. Industry observers have said for years that there are too many of those outlets. "There may be opportunities for Wal-Mart and others," a source says.

Analysts have valued HBC real estate at between $700-million and $900-million.

Retailers such as Loblaw Cos. Ltd., Home Depot Canada and the soon-to-arrive U.S.-based Lowe's Cos. Inc. are believed to be interested in picking up some of the stores.

The various groups that are considering an HBC bid are poring over leases, overhead costs, management expenses and a raft of other details to see whether they can make the numbers work. Some of those involved have said the leases and other matters are very complex.

While some have suggested that the Bain-Gordon Bros. group may have dropped out, one source says that while it has "some concerns about the performance" of HBC, it's still "a serious player . . . Just because they've stepped back once, doesn't mean that they've stopped dancing."

In late October, when Mr. Zucker first unveiled his intentions, the HBC stock price shot up above his $14.75-a-share offer price. However, more recently, the shares have dropped to below the bid level. Yesterday, they closed at $14.65, up 7 cents on the day, getting a lift in the last few minutes of trading after The Globe and Mail broke the story about the suitors on its website.

Late last month, Mr. Zucker extended the deadline for his bid by a month, to Jan. 31, after HBC finally agreed to give him access to its books, which the retailer had previously granted to other potential bidders.

Some observers have questioned whether Mr. Zucker, HBC's largest shareholder, really wants to acquire the whole company or, rather, simply hold out for someone else to be more generous.

More shoppers for HBC

The M&A sweepstakes are heating up for the takeover of Canada's venerable retailer. Jerry Zucker was the leading contender but he has now been joined by other interested bidders who are kicking the tires.


South Carolina financier Jerry Zucker began quietly acquiring Hudson's Bay Co. shares in mid-2003 when they were trading in the $9 range. On Oct. 28, he announced that his takeover company, Maple Leaf Heritage Investments Acquisition Corp., intended to bid $14.75 a share, or $1.1-billion, for the entire company, which it subsequently did. At that point Mr. Zucker held 18.8 per cent of HBC shares.

THE SPOILERS Onex Corp. headed by takeover heavyweight Gerry Schwartz, is considering buying HBC along with Mitchell Goldhar, owner of First Pro Shopping Centres Ltd. It is one of Canada's major big-box developers, has worked closely with Wal-Mart Canada and formed a joint venture to develop some of its Canadian sites.

Bain Capital LLC and Gordon Bros. are mulling a bid for HBC, although they are believed to have had some recent concerns with the retailer's financial performance. But they're still a player, one source says.

Cerberus Capital Management LP, a U.S. private equity firm, has teamed up with RioCan Real Estate Investment Trust, a key mall rival to First Pro, as well as Kimco Realty Corp. of New Hyde Park, N.Y. The group is believed to have tried to lure Target Corp. to take over some of the space that would be vacated by the new HBC owner.

Sun Capital Partners Inc. is a U.S. private investment firm which specializes in leveraged buyouts of companies that rank first or second in their respective industries. It has a history of acquiring an interest in underperforming firms.

HBC sets Friday bid deadline
Alternative offers to be sifted this weekend, although doubts remain one will emerge
Wednesday, January 18, 2006 Posted at 3:42 AM EST
From Wednesday's Globe and Mail

Hudson's Bay Co. has set a Friday deadline for bids to counter Jerry Zucker's hostile $1.1-billion offer, industry sources say, turning up the heat on would-be suitors.

The move means that those poring over HBC's books and its array of complex store leases have three more days to figure out whether they can make the math work -- a process that so far appears to have eluded them.

If other bids do emerge, HBC's financial advisers probably would spend the weekend reviewing them, negotiating with the parties and "playing each off the other," possibly leading to an announcement early next week, one source suggested.

An HBC spokeswoman would not comment.

Among those considering topping the offer is Gerry Schwartz's takeover company Onex Corp. along with mall developer Mitchell Goldhar, The Globe and Mail disclosed this week. Another group looking at making an offer is U.S. equity fund Cerberus Capital Management LP in partnership with RioCan Real Estate Investment Trust and Kimco Realty Corp. of New Hyde Park, N.Y., sources say. RioCan is the major Canadian rival to Mr. Goldhar's First Pro Shopping Centres Inc.

News about the would-be suitors sent HBC shares up almost 9 per cent yesterday before they fell back. The shaares closed at $15.73, up $1.08 or 7.3 per cent, in heavy trading on the Toronto Stock Exchange. That raised the stock above Mr. Zucker's $14.75-a-share offer.

Other parties that have seriously mulled an offer are financial firms Bain Capital LLC and Gordon Bros., both of Boston, as well as investment firm Sun Capital Partners Inc. of Boca Raton, Fla., sources say.

Despite the jockeying, it is possible that ultimately no one will come forward with a better offer than that of the South Carolina industrialist, analysts warn. That would leave Mr. Zucker to decide whether to adjust his bid.

Robert Johnston, vice-president of Mr. Zucker's InterTech Group Inc., said in an interview that he is looking at boosting the bid, but not at lowering it. "We're considering our options right now."

If a substantially better bid emerges, Mr. Zucker, who holds almost 19 per cent of HBC shares, could tender to it, Mr. Johnston said. However, he cannot sell his shares in the open market because he has an offer on the table.

He could walk away, analysts say, because his offer contains conditions that may be difficult to fulfill.

Some analysts are skeptical that the other potential bidders will come through with a counteroffer.

"I'm not holding my breath," said Robert Gibson, retailing analyst at Octagon Capital Research. He said the other players have had ample time to come forward.

Mr. Gibson believes that Mr. Zucker will ultimately raise his bid. The U.S. financier was finally granted access to HBC's confidential data in late December.

The emergence of two major mall developers as would-be players underscores the importance of HBC's real estate in any potential deal.

They would probably close some Zellers and Bay stores and find other retailers to fill the space, such as giant discounter Wal-Mart Canada Corp., sources say.

Mr. Goldhar, who is part of the Onex camp, is chief executive officer of First Pro, which is closely tied to Wal-Mart. If successful, the group probably would convert some HBC stores to Wal-Mart, sources say, adding that other chains interested in picking up HBC locations include Loblaw Cos. Ltd. and Home Depot Canada.

Mr. Gibson suggested that the Onex/Goldhar group may also sell some of the real estate to Calloway Real Estate Investment Trust, of which Mr. Goldhar is the largest shareholder. In recent years, First Pro has sold about 95 properties to the REIT.

RioCan, meanwhile, is the single largest landlord of Zellers, which is the discount arm of HBC. Sources suggest that the Cerberus/RioCan/Kimco camp would have liked to have lured U.S. discounter Target Corp. to Canada to take over HBC sites, but Target currently is not interested.

Analysts have said for years that HBC has too many Zellers and Bay stores, which now number almost 400.
Wednesday » January 18 » 2006

Too weak, too long: Hudson's Bay Co.'s days are numbered

Mark Anderson
The Ottawa Citizen

Wednesday, January 18, 2006

After more than three centuries in business, the end game is coming for Hudson's Bay Co., Canada's oldest retailer -- scratch that, Canada's oldest company, period.

As with the demise of the T. Eaton Co. five years ago, nationalists are already bemoaning the imminent loss of yet another historic corporate landmark.

For many, the pill will be especially bitter if the company's assets go to an American -- in this case, South Carolina businessman Jerry Zucker, who's currently offering $1.1 billion for the remainder of HBC's shares.

Interestingly, however, the prospect of a competing bid from Canadian companies -- Onex Corp. and First Pro Shopping Centres are rumoured to be mulling over a bid of their own -- might prove more damaging to the Canadian retail industry in the long term. That's because some analysts are speculating Wal-Mart Canada, the Canadian division of U.S. giant Wal-Mart Stores Inc., might be waiting in the wings, eager to occupy HBC floor space in the event of a successful Onex/First Pro bid.

Should this scenario come to pass, it's reasoned, Wal-Mart Canada could move far more quickly on its plan to roll out a suite of massive retail-grocery supercentres, putting pressure not only on our sole remaining department store chain -- Sears Canada -- but also on our major grocery chains: Loblaws, Sobeys and Metro Inc.

The rationale behind this particular theory is two-fold. First, HBC's real estate has been valued at anywhere from $700 million to $1 billion. Since Zucker's bid for the entire company is a mere $1.1-billion, it stands to reason that HBC's retail operation, brand equity and other assets are seen as virtually worthless.

This, in and of itself, isn't surprising, giving that HBC has reported losses in seven of its past eight quarters, including a whopping $50.3-million, 72-cents-per-share loss in its most recent quarter (analysts had expected a comparatively tiny loss of three cents per share).

If Zucker covets HBC primarily for its real estate, other bidders will surely have the same goal in mind. And since First Pro has a decade-long relationship with Wal-Mart Canada -- 90 of First Pro's Ontario big-box malls have freestanding Wal-Mart stores -- it makes sense that Wal-Mart would be one of the main beneficiaries of a successful First Pro-Onex bid.

The problem with this scenario, however, is that very little of HBC's real estate is suitable for regular Wal-Mart stores, let alone supercentres. Virtually without exception Bay department stores are not freestanding, but enclosed within larger shopping complexes, a model that doesn't mesh with Wal-Mart's standalone footprint.

HBC does own freestanding Zellers stores, but these are generally too small to be of use: the largest are 90,000 square feet, whereas Wal-Mart requires a minimum of 130,000 square feet for its regular stores, and close to 200,000 square feet for its supercentres. Of course, there is value in the zoned land -- it generally takes a minimum of three years, and sometimes as long as a decade, for Wal-Mart stores to line up the necessary zoning approvals -- but most of the sites would still be too small to accommodate Wal-Mart's massive acreage.

A more likely scenario would be for the Zellers stores, many of which are state-of-the-art and well-situated, to be sold to a chain with a similar footprint. Toronto retail consultant John Winter suggests the U.S. discount retailer Target, which has been eyeing Canada for some time, would be a logical fit.

Either way, whoever buys the Hudson's Bay Company will almost certainly break it up and sell it piecemeal. Which is a shame because, according to Winter, the company is not beyond repair.

"I think it's still salvageable. I go to Bay stores, and I've never seen them operating better than they are today. They've been working diligently to integrate their computer systems and supply chain, to get some new clothing lines and to capitalize on their Olympic cache. These are all solid, sensible steps."

Unfortunately, they're steps that needed to be taken 10 or 15 years ago, when Sears Canada undertook its major restructuring, the benefits of which are apparent today in per-foot sales almost double those of Bay and Zellers stores.

In the end, it comes down to productivity. The weak always get culled in the retail industry, and Hudson's Bay Co. has been too weak for too long.

Given time, it might be able to turn itself around. After 335-years in business, however, time appears finally to have run out on Canada's oldest company.
Retail: HBC goes Zucker

Saturday » January 21 » 2006
HBC mum as deadline for bids passes
Rita Trichur
The Canadian Press
Saturday, January 21, 2006

TORONTO - Hudson's Bay Co. stock dipped yesterday as Canada's oldest company remained silent about whether a white knight has emerged to fend off a hostile takeover offer for the national retailer.

The Toronto-based company, according to media reports, had set 5 p.m. ET yesterday as deadline for competing bids. The company has said in the past there are other interested parties but hasn't commented on the process.

Its shares shed 31 cents yesterday, or about two per cent, to close at $15.39 on the Toronto Stock Exchange. The stock hit a 52-week high of $16.05 on Tuesday.

Established in 1670, Hudson's Bay has more than 500 retail outlets, led by The Bay and Zellers chains.

U.S. businessman Jerry Zucker, who already owned just under 20 per cent of HBC, put the company in play last fall when he made an unsolicited takeover offer that values the Toronto retailer at over $1 billion.

Speculation about a white-knight suitor took flight this week on word that various parties were thumbing through HBC's finances and mulling competing takeover bids.

Topping that list, industry sources said, is conglomerate Onex Corp., which is reportedly partnering with privately held First Pro Shopping Centres on a due diligence review.

Neither company has commented.

First Pro was instrumental in bringing big-box giant Wal-Mart to Canada in the 1990s, and sources say Canada's largest retail developer is now interested in acquiring HBC's real-estate portfolio to help Wal-Mart set up its highly-anticipated supercentres in this country.

Analysts estimate HBC's real-estate assets have a market value of between $700 million and $900 million.

There were suggestions, however, that "continued-operation clauses" built into the leases of most Bay and Zellers stores were posing a potential obstacle.

Other rumoured suitors include U.S. private equity firm Cerberus Capital Management and Canadian shopping-mall owner RioCan Real Estate Investment Trust, Zellers' biggest landlord.

"We're obviously watching this," said Robert Johnston, Zucker's spokesman and vice-president of strategy at South Carolina-based Maple Leaf Heritage.

Zucker's offer of $14.75 a share, plus debt, expires Jan. 31. The clock is ticking, but in the absence of a competing bid, Mr. Johnston expects HBC's stockholders to tender their shares to his boss's offer next week.

Onex makes move on Hudson's Bay
Last-minute bid came in lower than Zucker's but has fewer strings attached
Monday, January 23, 2006 Page B1

Buyout powerhouse Onex Corp. and mall developer Mitchell Goldhar have submitted an offer for Hudson's Bay Co. that is lower than Jerry Zucker's, industry sources say, a move that puts the retailer's board in an awkward position.

The latest development leaves HBC with the U.S. financier's $1.1-billion, or $14.75 a share, highly conditional offer, as well as the Onex/Goldhar proposal, which is below $14.75 but contains fewer, more standard, conditions, the sources said.

The exact value of the Onex team's offer was unclear.

Mr. Zucker's conditions, such as an unusually steep requirement of 90-per-cent shareholder backing, would allow him to walk away from a deal very easily, observers have said. HBC has rejected the Zucker bid as being "inadequate," partly because it is so conditional.

The weekend revelations mean that the outcome of the almost three-month bitter takeover battle appears to be largely in Mr. Zucker's hands.

Mr. Zucker provided no hint of his next move.

Robert Johnston, vice-president at Mr. Zucker's South Carolina InterTech Group Inc., said in an e-mail yesterday that his group was not in talks with HBC or its representatives over the weekend. There is "nothing to do or know until tomorrow," he said, adding he couldn't comment until then.

If the wealthy U.S. businessman is determined to win the fight, he could raise his offer or soften some of his conditions, observers say.

On the other hand, he is under no pressure to increase his price, and may even suggest dropping it, they say. He was only granted access by HBC to its books in late December, and could argue the confidential data prompted him to redo his math.

Whatever the outcome, investors will be anxiously awaiting some news this morning. HBC had set last Friday at 5 p.m. as the deadline for counterbidders to top Mr. Zucker's offer, which expires Jan. 31. Investors may expect the country's oldest retailer, owner of the Bay, Zellers and Home Outfitters, to unveil new suitors before the stock market opens today.

No news would be bad news, observers say.

HBC spokeswoman Hillary Stauth would not comment.

HBC's shares shot up last week on the Toronto Stock Exchange, eclipsing Mr. Zucker's $14.75-a-share offer after The Globe and Mail disclosed that the Onex camp, led by Onex chairman Gerry Schwartz and Mr. Goldhar, had been seriously considering a counteroffer, along with three other groups. The shares slipped by week's end, closing Friday at $15.39, still higher than the Zucker bid, after The Globe reported that none of the parties had yet been able to make the numbers work at $14.75 or more.

Sources said that no one else submitted a bid. One group interested was U.S. private equity firm Cerberus Capital Management LP in partnership with RioCan Real Estate Investment Trust and Kimco Realty Corp. of New Hyde Park, N.Y. RioCan is a key rival to Mr. Goldhar's First Pro Shopping Centres Inc.

Another group that mulled a bid was an alliance between financial firms Bain Capital LLC and Gordon Bros., both of Boston.

The prospect of two major shopping mall developers in the race reflects the importance of real estate to the would-be bidders. After all, HBC occupies about 47 million square feet -- almost 10 per cent -- of the mall space in Canada. A new owner could try to put the space to work more productively by closing some of the almost 400 Bay and Zellers stores and finding another tenant or tenants to replace them.

Analysts say that HBC, which has struggled for years to improve its financial performance, runs too many Bay and Zellers stores, which now number close to 400.

The Onex/Goldhar team may have an extra incentive to try to do an HBC deal because Mr. Goldhar's First Pro has close ties to giant discounter Wal-Mart Canada Corp., which is believed to be interested in picking up some of the real estate.

It may be easier for Wal-Mart than for some other retailers, such as Home Depot, to assume some of the HBC store leases. That's because a number of the leases give the landlords considerable sway in deciding whether a store's use, or structure, could change. Wal-Mart and Zellers both run discount department stores.

HBC leases most of its real estate, although it owns what analysts estimate to be $800-million of it as well.

Another challenge to an HBC deal is potentially huge employee severance costs to close stores. The tab could come to "hundreds of millions of dollars, not tens of millions of dollars," one source said, depending on the number of stores being shut.

U.S. players among the would-be suitors were surprised at the "generosity" of Canada's employment laws, the source said.

In contrast, the Zucker team has said it intends to run HBC largely intact, although it, too, would close some money-losing Zellers stores.
HBC sold!

HBC has been sold. Now what?
Hudson's Bay sells to Zucker
Thursday, January 26, 2006 Posted at 2:40 PM EST
Globe and Mail Update

The board of Hudson's Bay Co., Canada's oldest company, unanimously agreed Thursday to a sweetened $15.25-a-share offer from U.S. billionaire Jerry Zucker's investment firm.

Mr. Zucker's Maple Leaf Heritage Investments Acquisition Corp. will pay about $860.4-million plus debt for the shares it doesn't already own, up from its previous offer of $832.2-million. That's 50 cents per share more than its last offer.

The move comes after several other parties expressed interest in buying the 336-year-old retailer, among them U.S. equity firm Cerberus Capital Management LP and buyout powerhouse Onex Corp. with mall developer Mitchell Goldhar, the Globe and Mail reported. Today's offer, however, likely seals the deal, analysts said.

"I can't imagine that there's going to be a white knight that comes out of the woodwork," Lori Wachs, president and portfolio manager at Delaware Investments, told Report on Business Television. "I would imagine that everyone's looking to close it sooner rather than later."

Hudson's Bay, established in 1670, is Canada's largest department store retailer. It has 550 stores as part of the Bay, Zellers and Home Outfitters chains. The company employs almost 70,000 people across Canada.

"The board has conducted a thorough process to maximize value for the shareholders of HBC, and after considering several offers for the company, has unanimously endorsed and is recommending that shareholders tender to the amended offer," Yves Fortier, Hudson's Bay's governor, said in a statement.

"We are satisfied that the amended offer constitutes full and fair value for the company."

Hudson's Bay shares jumped $1.10 or 7.9 per cent to $15.03 in Toronto with 10.7 million shares changing hands.

The conditions on the offer, which expires Feb. 24, have been significantly reduced. The amended offer is conditional on a minimum of 66 2/3 per cent of the shares of HBC being tendered (from a 90-per-cent threshold in its last offer), tender of a majority of HBC's unsecured subordinated debentures under the offer and the receipt of all necessary regulatory approvals.

"On behalf of the management of HBC, we are pleased with the outcome of the auction process and fully support Mr. Zucker's enhanced offer," said George Heller, HBC's president and chief executive.

Mr. Zucker has also offered to buy all of the outstanding 7.5 per cent convertible unsecured subordinated debentures due in 2008 at $1,010 for each $1,000 principal amount of debentures, the company said.

"We are pleased to have reached this agreement with HBC today and to be associated with a company with such a long and proud history," Mr. Zucker said in a statement.

"Through the implementation of more efficient methods we will positively differentiate HBC from its competitors."

Maple Leaf will mail the amended offer by Feb. 10.

Maple Leaf's Robert Johnston told ROB-TV his firm boosted the price after a closer look at HBC's books and with the intention of changing the offer to friendly from hostile. There is a break fee, he said, though he didn't specify how much.

He said Maple Leaf doesn't plan to sell large chunks of the Canadian retailer. "In a large part, we have no plans to sell any major assets to any other retailers," he said.

Apart from his pursuit of Hudson's Bay, Mr. Zucker isn't widely known in Canada. Few of the secretive billionaire's investments are household names or marquee properties.

His Charleston, S.C.-based holding company InterTech Group Inc. owns mainly obscure chemical and engineered product makers. Mr. Zucker also owns electronics companies, hockey rinks, laser tag centres, banking machine suppliers, two Charleston restaurants and commercial real estate. At various times, he's also owned banks and textile makers, including Montreal-based Dominion Textile Inc.

His ragtag collection of businesses generated an impressive $3-billion (U.S.) in revenue last year, making InterTech one of the largest private companies in the United States, according to Forbes Magazine. The magazine also ranked Mr. Zucker as the 346th wealthiest American in 2004, with an estimated fortune of more than $1-billion.

He grew up in Florida and South Carolina, where his parents settled, and went to the University of Florida, where he earned undergraduate degrees in math and science, plus a masters in electrical engineering.

Mr. Zucker's first notable business deal was in 1982, when he was still in his early thirties. He and a colleague bought a division of the textile manufacturer where they worked, RM Engineered Products. He used the investment as a springboard for a series of increasingly larger manufacturing acquisitions in the 1980s, including several divisions of then-shrinking chemicals giant E.I. du Pont de Nemours & Co.

Maple Leaf owned about 18.8 per cent of HBC in October when he began bidding for the company.