NEW YORK CITY-Saks Fifth Avenue‘s troubled days may finally be behind the upscale retailer. Lord and Taylor‘s parent company, Hudson’s Bay, is set to acquire Saks Fifth Avenue for $16 a share in a transaction valued at approximately $2.9 billion, including debt.
Based in Toronto, Hudson’s says it will establish a real estate investment trust to hold the combined properties of the two companies, the New York Post reports. However a joint press release from the two retailers says, “HBC will evaluate strategic alternatives to fully realize the substantial value from the combined property portfolio including but not limited to the creation of a real estate investment trust.”
Saks has struggled as of late, though the company only first began exploring the possibility of a sale back in May. The combined company will oversee 320 locations in total, 179 of which are full department stores, 72 outlet stores and 69 home stores in retail locations throughout the U.S. and Canada, along with three e-commerce sites. The merged retailer would have reported revenue of about $7 billion in the 2012 fiscal year.
It was not clear at press time whether any of the stores would be converted from one brand to another or if any would be shuttered, though reports do state that Saks will operate separately under the HBC umbrella and will remain headquartered in New York City. Spokespersons for HBC and Saks Fifth Avenue did not return calls from GlobeSt.com seeking comment.
Says retail authority Faith Hope Consolo, chairman of the retail group at Douglas Elliman, “It’s a very smart move on Lord & Taylor’s part because the most competitive part of retail real estate right now is department stores. The future of department stores is bigger and better, but it can only be strong when you merge the giants. The merged company, which has great real estate, is going to be next 800-pound gorilla on the street.”
HBC reports it will finance the transaction and refinance debt with a combination of about $1 billion of new equity, $1.9 billion of senior secured loans, $400 million of senior unsecured notes and available cash on hand. An entity affiliated with Ontario Teachers’ Pension Plan and funds advised by West Face Capital Inc. separately have committed to provide HBC with $500 million and $250 million of equity funding, respectively, to support this transaction. BofA Merrill Lynch and Royal Bank of Canada have provided HBC with fully committed credit facilities.
According to the New York Times, Saks received advice on the deal from Goldman Sachs, Morgan Stanley, Guggenheim Securities and the law firm Wachtell, Lipton, Rosen & Katz. The Hudson’s Bay Company was advised by Bank of America Merrill Lynch, RBC Capital Markets and the law firms of Stikeman Elliott and Willkie Farr & Gallagher.
Executives on both sides of the deal say the transaction benefits buyer and seller alike. “This exciting portfolio of three iconic brands creates one of North America’s premier fashion retailers,” says Richard Baker, HBC chairman and CEO. “This acquisition will increase our growth potential both in the U.S. and Canada, generate significant efficiencies of scale, add to our powerful real estate portfolio and deliver substantial value to our shareholders.”
Adds Steven Sadove, Saks chairman and CEO, “We are excited about what this opportunity and being part of a much larger enterprise can mean for the future of the Saks Fifth Avenue brand.”