Real-estate focused activist Jonathan Litt on Monday escalated his battle with Saks Fifth Avenue chain owner Hudson's Bay Co. (HBC) in a move that is likely the first stage of an expedited director fight.
The insurgent hedge fund manager said he plans to call a special meeting at the department store chain, which could include an effort to remove incumbent Hudson Bay directors or have shareholders vote on proposals. A strong vote against directors or for a non-binding proposal urging the company to monetize its real estate or consider selling itself, for example, could put a lot of pressure on executives to take some sort of M&A action.
Litt, who runs Land & Buildings Investment Management LLC, launched an activist campaign in June and had floated several initial ideas for Hudson's Bay, such as going private or selling the Saks brand. Hudson Bay also owns other chains, including Lord & Taylor. The activist fund also has been urging Hudson's Bay to sell and lease back its extensive real estate holdings.
The escalation on Monday comes after Hudson Bay revealed late Friday that its CEO, Jerry Storch, was leaving the company Nov. 1. Replacing Storch, in an interim capacity, is the company's executive chairman Richard Baker. However, Litt argued in a statement that Baker's installment as interim CEO, as the company seeks a full-time CEO, is bad news. He contends that Baker has been "stonewalling" Land & Buildings regarding its plan to "unlock the value of the real estate..."
By calling a special shareholder meeting, Litt is taking advantage of some pro-shareholder rules available to activists in Canada, including one that allows investors with a 5% stake to call a special shareholder meeting with the goal of removing directors. Litt, who owns about 4% of Hudson's Bay, would easily be able to obtain the stake needed to call a special shareholder meeting for the election of directors that wouldn't have to wait until the retailer's next annual meeting. In the U.S., many corporations don't permit special shareholder meetings and others that do require a group of shareholders seeking to call meetings to have 20%, 30% or even much higher stakes before they can be permitted to set one up.
Litt's escalation comes after The Deal reported recently, citing sources, that Hudson's Bay in August tapped Bank of America Corp. (BAC) to advise it on a review of strategic options and defend itself against Litt and his activist fund. Litt noted recently that the department store chain also has hired or is hiring J.P. Morgan Chase & Co. (JPM) as a financial adviser for an independent director committee. It is possible the hire could mean Baker could be considering a potential management-led go-private transaction. Baker reportedly is seeking to raise funds for a take-private transaction, which could be difficult to do considering the mounting problems facing department store chains.
It's unclear whether Litt would be satisfied with a management-led go private transaction as he initially invested in Hudson's Bay roughly a year ago when the prevailing outlook was that the company would thrive because of its real estate assets.
His latest effort comes after Hudson's Bay posted a disappointing second-quarter loss of C$1.10 per share on Sept. 5-below the $0.59 loss that Wall Street predicted. The poor results also likely drove Hudson Bay to remove its CEO. They could also bolster Litt's efforts to convince shareholders to support his M&A agenda. The activist fund manager had previously suggested that there could be serious third-party interest in HBC's German assets and he urged the board to evaluate any indications of interest that could materialize.
The department store chain's share price dropped in early trading Monday on the news of Storch's departure, to C$11.49 a share.
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* Cathaleen Chen contributed to this report