Multi-Faceted Strategic Relationship Provides
Significant Benefits to Shareholders
HBC (TSX: HBC) today provided an update on the previously
announced series of strategic transactions with WeWork Companies
(“WeWork”), Rhône Capital (together with Rhône Group and
affiliates, “Rhône”), and an affiliate of WeWork Property Advisors
(“WeWork Property Advisors”), a joint venture between WeWork and
Rhône. HBC’s application to the Toronto Stock Exchange (TSX)
relating to Rhone’s equity investment of U.S. $500 million (C$632
million) in the form of 8-year mandatory convertible preferred
shares has received conditional approval, subject to customary
deliverables on or before transaction closing. In addition to this
step forward toward completion of these transactions, HBC confirmed
certain aspects of these transactions.
Transaction Overview and Benefits
As previously disclosed, the series of interconnected
transactions with WeWork and Rhône include the sale of the Lord
& Taylor Fifth Avenue building to WeWork Property Advisors for
the value of US$850 million (C$1.075 billion), a strategic and
long-term investment by Rhone in the amount of US$500 million
(C$632 million), 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
monetizations.
Enhances financial flexibility: This transaction will
provide HBC with enhanced liquidity and financial flexibility and
will significantly strengthen HBC’s balance sheet in a difficult
retail environment. HBC expects that these transactions will result
in an aggregate of C$1.6 billion of debt reduction and/or
incremental cash on HBC’s balance sheet and an increase in total
liquidity of approximately C$1.1 billion, which positions HBC well
in these challenging operating and financing conditions for
retailers.
Drives value for shareholders: Demonstrates HBC’s ability
to successfully monetize its valuable real estate assets in the
near- and longer-term while creating opportunities to improve
productivity and utilization across its real estate portfolio.
WeWork’s occupancy of select department stores further enhances the
credit profile of these world class assets.
Positions HBC to define the future of retail: This
strategic one-of-a-kind alliance positions HBC to establish
leadership in experiential retailing, and to continue to adapt to
the rapidly evolving retail environment in partnership with two
highly regarded organizations.
HBC notes that, contrary to certain claims and assertions made
since the announcement of the transactions:
- Rhône is Acquiring a Minority Equity
Stake that Does NOT Represent Control of HBC. The mandatory
convertible preferred shares to be issued to Rhône are priced at
C$12.42, a premium to the closing price of C$11.75 for HBC’s common
shares on October 23, 2017. HBC expects that Rhône will hold a
21.8% voting and equity interest in HBC upon closing, or an
approximately 30.0% voting and equity interest if the preferred
shares are held to their 8-year maturity and assuming no changes in
dividends currently payable on HBC’s common shares, in both cases
calculated on an as converted basis. Upon closing, Rhône will have
the right to nominate two members of HBC’s board of directors for
election.
- Rhône is NOT Required to Support
Shareholder Nominees. Rhône is providing a limited and
customary voting covenant to support director nominees recommended
by HBC’s Board. It will not be required to vote for any person
nominated by any shareholder.
- HBC Will NOT Have Any Other Voting
Agreements with its Shareholders. Other than the limited Rhône
voting covenant described above, HBC will not have voting
agreements with any shareholder with respect to director elections
or any other company proposal. Effective on closing of the Rhône
equity investment, HBC will release its other shareholders from
their existing voting covenants that committed those shareholders
to vote for directors put forward for election by HBC.
- Majority of HBC Shareholders Have
Already Approved These Transactions. HBC 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. These shareholders will not
obtain any benefit from, or be affected by, the Rhône investment in
any manner other than such benefits and effects that all
shareholders of HBC derive from the transactions.
- HBC’s Board Unanimously Determined
These Unique Transactions Were in the Best Interests of HBC and its
Stakeholders. These unique transactions were carefully
considered by HBC’s Board of directors, the majority of which are
independent directors. The Board unanimously determined that these
transactions were in the best interests of HBC and its stakeholders
and after receiving advice from its financial and legal advisors,
unanimously approved these transactions.
- Rhône’s Preferred Shares are
Mandatorily Convertible After 3 Years. 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 3
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 6 years, if HBC’s stock is at least 100% of
the applicable conversion price. After 8 years, the preferred
shares will automatically convert into common shares based on the
then-accreted value.
Regulatory Detail and Timing
HBC has received confirmation from the Toronto Stock Exchange
that its application to reserve the common shares issuable on
conversion of the preferred shares related to Rhône’s equity
investment has been conditionally approved by the TSX, subject to
customary deliverables on or before closing. HBC has also delivered
the necessary materials to the TSX confirming that, as previously
announced, it has obtained the requisite approval from shareholders
holding in the aggregate more than 50% of the outstanding common
shares.
It is currently anticipated that the Rhône equity investment
will close in November 2017 (no earlier than November 15, 2017),
subject to the receipt of all necessary regulatory approvals,
including approval from the Competition Bureau in Canada, approval
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in
the U.S. and other customary closing conditions. It is currently
expected that the acquisition of the Lord & Taylor Fifth Avenue
building will close no later than August 10, 2018, subject to the
satisfaction of applicable conditions. The Lord & Taylor Fifth
Avenue flagship store is currently expected to continue operations
in the entire building throughout the 2018 holiday season.
About HBC
HBC is a diversified global retailer focused on driving the
performance of high quality stores and their all-channel offerings,
growing through acquisitions, and unlocking the value of real
estate holdings. Founded in 1670, HBC is the oldest company in
North America. HBC's portfolio today includes formats ranging from
luxury to premium department stores to off price fashion shopping
destinations, with more than 480 stores and over 66,000 employees
around the world.
HBC's leading banners across North America and Europe include
Hudson's Bay, Lord & Taylor, Saks Fifth Avenue, Gilt, Saks OFF
5TH, Galeria Kaufhof, the largest department store group in
Germany, and Belgium's only department store group Galeria
INNO.
HBC has significant investments in real estate joint ventures.
It has partnered with Simon Property Group Inc. in the HBS Global
Properties Joint Venture, which owns properties in the United
States and Germany. In Canada, it has partnered with RioCan Real
Estate Investment Trust in the RioCan-HBC Joint Venture.
FORWARD-LOOKING STATEMENTS
Certain statements made in this news release are forward-looking
statements within the meaning of applicable securities laws,
including, but not limited to, statements with respect to HBC's
global, multi-faceted strategic relationship with WeWork, Rhône and
WeWork Property Advisors, including the transactions contemplated
thereby, namely (i) Rhône's U.S.$500 million (C$632 million) equity
investment in HBC, (ii) the sale of the Lord & Taylor Fifth
Avenue flagship building to WeWork Property Advisors in a
transaction valued at U.S.$850 million (C$1.075 billion) comprising
the purchase price and related rent reductions, and (iii) the
entering into of leases with respect to select HBC department store
locations, including, in each case, the satisfaction of applicable
conditions, regulatory approvals and the timing thereof,
expectations regarding the timing of closing, the expectation that
these transactions are expected to result in an aggregate of C$1.6
billion of debt reduction and/or incremental cash on the Company's
balance sheet and an increase in total liquidity of approximately
C$1.1 billion, and other statements that are not historical facts.
Often but not always, forward-looking statements can be identified
by the use of forward-looking terminology such as "may", "will",
"expect", "believe", "estimate", "plan", "could", "should",
"would", "outlook", "forecast", "anticipate", "foresee", "continue"
or the negative of these terms or variations of them or similar
terminology.
Although HBC believes that the forward-looking statements in
this news release are based on information and assumptions that are
current, reasonable and complete, these statements are by their
nature subject to a number of factors that could cause actual
results to differ materially from management's expectations and
plans as set forth in such forward-looking statements, including,
without limitation, the following factors, many of which are beyond
HBC's control and the effects of which can be difficult to predict:
(a) the failure to obtain or satisfy, in a timely manner or
otherwise, required regulatory approvals and other conditions of
closing necessary to complete the transactions; (b) the failure to
obtain or satisfy, in a timely manner or otherwise, conditions of
closing necessary to complete the sale of the Lord & Taylor
Fifth Avenue flagship building; (c) the possibility that the
anticipated benefits from the strategic relationship cannot be
realized in a timely manner or otherwise; (d) credit, market,
currency, operational, real estate, liquidity and funding risks
generally, including changes in economic conditions, interest rates
or tax rates; (e) risks and uncertainties relating to information
management, technology, supply chain, product safety, changes in
law, competition, seasonality, commodity price and business and (h)
other risks inherent to the Company's business and/or factors
beyond its control which could have a material adverse effect on
the company.
HBC cautions that the foregoing list of important factors and
assumptions is not exhaustive and other factors could also
adversely affect its results. For more information on the risks,
uncertainties and assumptions that could cause HBC's actual results
to differ from current expectations, please refer to the "Risk
Factors" section of HBC's Annual Information Form dated April 28,
2017, the "Risk Factors" section of HBC's MD&A dated September
5, 2017, as well as HBC's other public filings, available at
www.sedar.com and at www.hbc.com.
The forward-looking statements contained in this news release
describe HBC's expectations at the date of this news release and,
accordingly, are subject to change after such date. Except as may
be required by applicable Canadian securities laws, HBC does not
undertake any obligation to update or revise any forward-looking
statements contained in this news release, whether as a result of
new information, future events or otherwise. Readers are cautioned
not to place undue reliance on these forward-looking
statements.
Unless otherwise indicated, figures in this news release assume
U.S$1 = C$1.26 and C$1 = U.S.$0.79
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version on businesswire.com: http://www.businesswire.com/news/home/20171107006802/en/
INVESTOR RELATIONS:Elliot GrundmanisPhone: (646)
802-2469Email: elliot.grundmanis@hbc.comorMEDIA:Andrew
BlecherPhone: (646) 802-4030Email: Andrew.blecher@hbc.com