Hudson's Bay Company

TSX : HBC


Hudson

August 20, 2013 15:39 ET

Hudson's Bay Company Announces $275 Million Bought Deal Offering of Subscription Receipts

TORONTO, ONTARIO--(Marketwired - Aug. 20, 2013) -

NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES

Hudson's Bay Company (TSX:HBC) ("HBC" or the "Company") is pleased to announce today that it has entered into an underwriting agreement with a syndicate of underwriters (the "Underwriters") to sell 16,050,000 subscription receipts (the "Subscription Receipts") at a price of $17.15 per Subscription Receipt, for aggregate gross proceeds of $275,257,500 (the "Offering"). The syndicate of underwriters is led by RBC Capital Markets, CIBC World Markets Inc., BMO Nesbitt Burns Inc., TD Securities Inc. and Merrill Lynch Canada Inc. who will act as joint bookrunners. HBC has also granted the Underwriters an over-allotment option, exercisable in whole or in part at any time until the earlier of (i) 30 days following the closing of the Offering and (ii) the Termination Date (as defined below) and (iii) the satisfaction of the Escrow Release Conditions (defined below) to purchase up to an additional 1,605,000 Subscription Receipts for additional gross proceeds of up to $27,525,750 to cover over-allotments, if any, and for market stabilization purposes.

On July 28, 2013, the Company entered into a definitive merger agreement (the "Merger Agreement") with Saks Incorporated ("Saks") whereby the Company agreed to acquire (the "Acquisition") all of the issued and outstanding shares of Saks for US$16.00 per share in an all-cash transaction valued at approximately US$2.9 billion, including debt (the "Purchase Price"), through the merger of an indirect wholly-owned subsidiary of the Company and Saks. The closing of the Acquisition (the "Acquisition Closing") is expected to occur before the end of the calendar year.

This Acquisition 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 321 stores, including 179 full-line department stores, 73 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 C$7.2 billion and C$599 million, respectively, before any synergies. HBC expects to achieve C$100 million of annual synergies within three years.

The gross proceeds from the sale of Subscription Receipts will be held by in escrow pending confirmation by the Company to the Underwriters and the escrow agent that the conditions precedent to completing the Acquisition contained in the Merger Agreement have been satisfied (the "Escrow Release Condition").

If the Escrow Release Condition is satisfied prior to 12:01 a.m.(Toronto time) on the Termination Date (as defined herein), holders of Subscription Receipts will be entitled to receive, without payment of additional consideration or further action, one common share of HBC for each Subscription Receipt plus if applicable, payment equal to the aggregate amount per common share of dividends declared by the Company, if any, for which record dates have occurred during the period from the date of the closing of the Offering to the date immediately preceding the satisfaction of the Escrow Release Condition. If (i) the Escrow Release Condition is not satisfied by 12:01 a.m. (Toronto time) on April 25, 2014, (ii) the Merger Agreement is terminated at any earlier time, or (iii) the Company advises the Joint Bookrunners or announces to the public that it does not intend to proceed with the Acquisition (the date upon which any such event occurs, being the "Termination Date"), holders of the Subscription Receipts will be entitled to receive an amount equal to the full subscription price thereof plus their pro rata share of earned interest.

The net proceeds of the Offering will be used to finance a portion of the Purchase Price. The Offering is expected to close on or about September 10, 2013 and is subject to customary closing conditions including approvals of applicable securities regulatory authorities. The Company intends to apply to list the Subscription Receipts and the common shares of the Company issuable pursuant to the terms of the Subscription Receipts on the Toronto Stock Exchange. Listing will be subject to the Company fulfilling all of the listing requirements of the TSX.

For more details on the terms and conditions of the Merger Agreement including in respect of the "go-shop" provision and the matching rights provision, please refer to the Company's material change report dated July 30, 2013 (the "Material Change Report") and the preliminary short form prospectus in respect of the Offering. The Company and Saks may consummate the Acquisition on terms that may be substantially different from those contemplated in the Material Change Report and the preliminary short form prospectus in respect of the Offering.

As previously announced, an entity affiliated with Ontario Teachers' Pension Plan ("Teachers'") and funds advised by West Face Capital Inc. ("West Face") have separately committed to provide HBC with US$500 million and US$250 million of equity funding, respectively, to support the Acquisition (collectively, the "Equity Commitments"). The Equity Commitments are subject to a number of conditions including a condition in favour of West Face that there be no material adverse effect on the HBC business prior to the Acquisition Closing. In addition, each of Teacher's and West Face has the benefit of certain price protection provisions in respect of the Equity Commitments, which are more fully described in the Material Change Report and the preliminary short form prospectus in respect of the Offering. Neither the closing of the Offering nor the satisfaction of the Escrow Release Condition are conditional on the completion of either of the Equity Commitments.

The Subscription Receipts have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any offer, solicitation or sale of the securities in any state in which such offer, solicitation or sale would be unlawful.

About Hudson's Bay Company

Hudson's Bay Company, founded in 1670, is North America's longest continually operated company. In Canada, HBC operates Hudson's Bay, Canada's largest branded department store with 90 locations, unsurpassed in its fashion, beauty, home and accessory designers and brands, as well as thebay.com. HBC also operates Home Outfitters, Canada's largest home specialty superstore with 69 locations across the country. In the United States, HBC operates Lord & Taylor, a department store with 48 full-line store locations throughout the northeastern United States and in two major cities in the Midwest, and lordandtaylor.com. With approximately 29,000 associates in Canada and the U.S., HBC's banners provide stylish, quality merchandise at great value, with a dedicated focus on service excellence. Hudson's Bay Company trades on the Toronto Stock Exchange under the symbol "HBC".

Non-IFRS Measures

This News Release makes reference to certain non-IFRS measures, including Normalized EBITDA. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of HBC's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess our ability to meet our future debt service, capital expenditure and working capital requirements. Investors are directed to the prospectus to be filed in connection with the offering for the relevant reconciliations.

Forward-Looking Statements

Information in this press release that is not current or historical factual information may constitute forward-looking information, including with respect to the timing and completion of the Offering, the Equity Commitments and the Acquisition. This information is based on certain assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While the Company considers these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Forward-looking information is subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what the Company currently expects. These risks, uncertainties and other factors include, but are not limited to: credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, interest rates or tax rates, the timing and market acceptance of future products, competition in the Company's markets, the growth of certain business categories and market segments and the willingness of customers to shop at the Company's stores, the Company's margins and sales and those of the Company's competitors, the Company's reliance on customers, risks and uncertainties relating to information management, technology, supply chain, product safety, changes in law, regulations, competition, seasonality, commodity price and business disruption, the Company's relationships with suppliers and manufacturers, changes to existing accounting pronouncements, the ability of the Company to successfully implement its strategic initiatives, changes in consumer spending, managing HBC's portfolio of brands and HBC's merchandising mix, seasonal weather patterns, economic, social, and political instability in jurisdictions where suppliers are located, increased shipping costs, potential transportation delays and interruptions, the risk of damage to the reputation of brands promoted by the Company and the cost of store network expansion and retrofits, compliance costs associated with environmental laws and regulations, fluctuations in currency and exchange rates, commodity prices, the Company's ability to maintain good relations with its employees, changes in the law or regulations regarding the environment or other environmental liabilities, the Company's capital structure, funding strategy, cost management programs and share price, the Company's ability to integrate acquisitions and the Company's ability to protect its intellectual property.

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