Hudson’s Bay Co., the operator of Canada’s largest department store chain, agreed to acquire luxury retailer Saks Inc. for $2.4 billion, creating a company that will operate 320 stores in North America.
The purchase price of $16 a share will be paid in cash, the companies said today in a statement. That represents a 30 percent premium to Saks’s closing price on May 20, the day before media reports began, according to the statement. Including debt, the transaction is valued at $2.9 billion.
Hudson’s Bay, founded in 1670 and based in Toronto, expects the deal, which brings together Lord & Taylor and Saks Fifth Avenue brands, to produce C$100 million ($97 million) in cost savings within three years. Saks hired Goldman Sachs Group Inc in May to explore strategic alternatives, including a sale.
Saks rose 3.9 percent to $15.87 at 7:53 a.m. Hudson’s Bay increased 2.2 percent to C$16.85 in Toronto trading.
Hudson’s Bay is paying about 9 times Saks’s earnings before interest, taxes, depreciation and amortization on an equity basis, compared a median multiple of 8 for similar deals compiled by Bloomberg.
The combined company will have 179 full-line department stores, 72 outlet stores and 69 home stores throughout the U.S. and Canada, along with three e-commerce sites, according to the statement.
Real Estate Portfolio
Hudson’s Bay will also evaluate alternatives for the property portfolio including creating real estate investment trusts. Saks has locations on Fifth Avenue in New York City and Wilshire Boulevard in Beverly Hills, while Hudson’s Bay has properties in downtown Toronto, Vancouver and Montreal.
Under the terms of the agreement, there is a 40-day go shop period, during which Saks may seek bids from other suitors. Hudson’s Bay plans to finance the purchase with $1 billion of new equity, $1.9 billion of senior secured loans and $400 million of senior unsecured notes and available cash on hand.
Saks’s annual sales haven’t recovered from their pre- recession high. The retailer posted revenue of $3.15 billion last year, short of the $3.28 billion it recorded in the retail year that ended in early 2008.Chief Executive Officer Stephen Sadove, who has held the post for six years, has been closing the chain’s underperforming branches. It now operates 41 namesake stores, compared with 54 in early 2007.