Hudson's Bay Buys Saks for $2.9 Billion

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Hudson's Bay Buys Saks for $2.9 Billion

07/29/2013
Hudson's Bay Company is acquiring Saks Incorporated for $16 per share in an all-cash transaction valued at approximately $2.9 billion, including debt.

The transaction has been approved by each company's board of directors and is expected to close before the end of the calendar year, subject to approval by Saks shareholders, regulatory approvals and other customary closing conditions.

This transaction will bring together three of the retail industry's most iconic brands – Hudson's Bay, Lord & Taylor and Saks Fifth Avenue – to create a leading North American retailer addressing a broad consumer spectrum across the luxury, mid-tier and outlet retail sectors.

HBC will continue to build upon Saks' market-leading position and identity as a luxury retailer. The combined company will operate 320 stores, including 179 full-line department stores, 72 outlet stores and 69 home stores in prime retail locations throughout the U.S. and Canada, along with three e-commerce sites. The combined company would have generated pro forma sales and normalized EBITDA in fiscal 2012 of approximately $7.2 billion and $587 million, respectively, before any synergies. HBC expects to achieve $100 million of annual synergies within three years.

"This exciting portfolio of three iconic brands creates one of North America's premier fashion retailers," stated Richard Baker, HBC's Chairman and CEO. "I've had a long connection with Saks over the years, and am thrilled to bring one of the world's most recognized luxury retailers into the HBC family. With the addition of Saks, HBC will offer consumers an unprecedented range of retailing categories and shopping experiences. 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."

Steve Sadove, Chairman and CEO of Saks, said, "We believe this transaction delivers compelling value to our shareholders and that Saks Fifth Avenue is an excellent fit within the HBC organization. We also believe that HBC recognizes the tremendous value of our people, our real estate, our customer and vendor relationships, and most importantly the power and potential of our iconic brand.

"The $16 per share price represents an approximate 30 percent premium to the May 20, 2013 closing price, the day before media speculation began," he continued. "We have made significant progress over the past few years to position Saks for future growth and to evolve into an omni-channel retailer. 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."

Driving growth and creating efficiencies of scale
The acquisition of Saks will drive significant revenue growth opportunities for HBC. This includes the introduction of Saks into Canada through full-line, outlet and online formats, building upon Canada's position as saks.com's largest international ship-to market. The combination will maximize existing e-commerce platforms across all three banners to enhance customers' shopping experience. HBC also plans to continue OFF 5TH's expansion throughout the U.S.

The transaction further advances HBC's previously articulated strategy for enhanced growth. HBC will continue to execute its investment plan across all three banners to upgrade the customer experience and deliver greater productivity in its stores and omni-channel platforms.

HBC expects to realize C$100 million in annual synergies within three years through a combination of operational efficiencies, implementing best practices across banners and back-office consolidation. HBC will leverage top talent across both organizations and optimize a multi-banner shared services organization to drive additional benefits and reduce expenses.

HBC is committed to preserving and building upon the iconic position of the Saks Fifth Avenue brand. Saks will operate separately under the HBC umbrella, including its own merchandising, marketing and store operations teams, and will remain headquartered in New York City. It is also expected that Saks will continue to be led by key members of its existing management team.

World-Class Retail Real Estate Portfolio

The combination of Saks and HBC's real estate creates an unmatched coast-to-coast North American retail portfolio serving three strong banners. This real estate is highlighted by a number of marquee owned properties including Saks Fifth Avenue locations on Fifth Avenue in New York City and Wilshire Boulevard in Beverly Hills; Lord & Taylor's Fifth Avenue flagship; and Hudson's Bay properties in downtown Toronto, Vancouver and Montreal, among others.

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.

Financing of the transaction
HBC intends to finance the transaction, and refinance certain existing indebtedness at HBC, with a combination of approximately $1.0 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. have separately 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, which together with the equity commitment provided by Teachers', is sufficient to close the transaction.

The company has received conditional listing approval from the Toronto Stock Exchange for the common shares of the company to be issued to Teachers' and West Face. In consideration for Teachers' commitment, concurrently with the execution of the merger agreement, HBC has issued 1.5 million share purchase warrants to Teachers', and will issue an additional 3.5 million share purchase warrants to Teachers' upon the closing of the transaction.

In consideration for the West Face commitment, HBC will issue 1.75 million share purchase warrants to West Face upon the closing of the transaction. The subscription price of the common shares and the exercise price of the warrants will be C$17 per share (subject to adjustment in certain limited circumstances), which represents a premium to the trading price of HBC's shares immediately prior to the announcement of the transaction.

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