TORONTO – June 15, 2015 – Hudson’s Bay Company (TSX:HBC) (“HBC” or the “Company”) announced today that it has entered into a definitive agreement with METRO AG (DB:MEO) to acquire Galeria Holding (“Kaufhof”), the parent company of Germany’s #1 department store Kaufhof, for an enterprise value of €2.420 billion (C$3.357 billion)(1). The acquisition is subject to customary closing conditions and is currently expected to close by the end of the third fiscal quarter of 2015.
HBC also announced today that it has concurrently entered into an agreement in principle with Simon Property Group (“Simon”) pursuant to which the previously announced U.S. real estate joint venture between HBC and Simon (the “Simon-HBC JV”) intends to purchase at least 40 of Kaufhof’s owned or partially-owned properties (“Kaufhof Real Estate Transaction”) for at least €2.4 billion (C$3.3 billion), subject to definitive documentation, securing acceptable debt financing and certain other conditions.
The Kaufhof acquisition price is expected to be largely financed by proceeds received from the Kaufhof Real Estate Transaction and, as a result, HBC does not intend to issue equity and expects to incur limited additional debt at HBC. See “Financing Summary” further below.
The contemplated transactions are expected to be significantly accretive to HBC’s earnings per share without requiring any synergies. HBC expects to generate more than C$200 million(2) of incremental Adjusted EBITDA and reduce leverage, pro forma for the Kaufhof acquisition and the Kaufhof Real Estate Transaction, as well as the previously announced joint venture transactions.
With the Kaufhof transactions, HBC is building a premier international retailer with, on a pro forma basis:
464 locations in 4 countries with 8 leading banners;
C$13 billion in revenue;
C$1.5 billion in Adjusted EBITDAR(3);
More than C$754 million in Adjusted EBITDA(2,3);
C$11 billion(4) in real estate value; and
Strong management teams leading each business in North America and Europe.
Mr. Richard Baker, Governor and Executive Chairman of HBC, said: “These are exciting transactions that demonstrate our proven growth formula in action: improving solid retail operations, unlocking the value of real estate and growing through acquisitions. This is the right investment at the right time. We have been carefully surveying the European retail landscape for many years for a potential expansion opportunity and have watched Kaufhof build on its exceptional real estate to become the #1 department store in Germany. We are excited to work with the existing Kaufhof management team, bring our expertise to bear in the German retail sector and welcome Kaufhof to our portfolio of dynamic brands.”
#1 Department Store in Germany and Belgium with Exceptional Locations
Kaufhof is the #1 German department store by market share, with 103 Galeria Kaufhof locations and 16 Sportarena stores. Kaufhof also operates Belgium’s only department store with 16 Galeria INNO locations across the country. Kaufhof has exceptional store locations on high-streets in densely populated and prosperous cities throughout Germany, the largest economy in Europe and fourth largest in the world, and in prime locations across Belgium. For the twelve month period ended March 31, 2015, Kaufhof generated sales of €3.1 billion and Normalized EBITDA of €282 million.
Kaufhof’s management is expected to remain in place following the closing of the acquisition providing separate management teams for each business in North America and Europe, with each fully focused on their respective businesses. Kaufhof will be overseen by Richard Baker, Jerry Storch and Donald Watros, and will work closely with HBC’s leadership to explore opportunities to further strengthen Kaufhof’s offerings to consumers.
Creation of a Global Platform which Positions HBC for Future Growth in Europe
Jerry Storch, CEO of HBC, said: “This acquisition is a significant step forward in our plans to become a premier international retailer. With Kaufhof, we will operate eight leading banners in Canada, the United States, Germany and Belgium. Expanding our footprint into Europe with Kaufhof also provides us with a strong foundation to explore to explore additional opportunities for growth throughout the Continent.”
When Kaufhof is combined with HBC’s current portfolio of iconic store banners, including Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue, Saks OFF 5TH and Home Outfitters, HBC will operate 464 stores with approximately 44% of sales generated in United States, 31% in Germany, 23% in Canada and 2% in Belgium. HBC will also have a strong and growing eCommerce platform, supporting best-in-class, all-channel sales opportunities.
Significant Value Creation for HBC Shareholders: No Equity Issuance by HBC, De-levering of HBC, and Significantly Accretive to EPS
Mr. Richard Baker added: “These transactions have the potential to deliver significant value to our shareholders. The anticipated sale of more than 40 prime Kaufhof properties to the Simon-HBC JV should allow HBC to generate significant incremental Adjusted EBITDA, while issuing no equity and incurring limited additional debt at HBC.”
Pro Forma for the transactions:
HBC is expected to generate incremental Adjusted EBITDA of more than C$200 million(2,3) and does not intend to issue equity and expects to incur limited additional debt at HBC(5);
HBC’s leverage is expected to decrease pro forma for the Kaufhof acquisition and Kaufhof Real Estate Transaction, as well as the joint venture transactions;
Assuming the transactions close as contemplated, the transactions are expected to be immediately accretive to EPS without requiring synergies;
The transactions increase the value of HBC’s real estate portfolio to C$11 billion(4); and
Any proceeds from the Kaufhof Real Estate Transaction in excess of the Kaufhof purchase price will be reinvested in the Simon-HBC JV.
Financing Summary
HBC has received aggregate term loan B commitments of approximately US$3.250 billion (C$4.001 billion) from Bank of America Merrill Lynch, Morgan Stanley Senior Funding, Inc., RBC Capital Markets, and Scotiabank to fund the Kaufhof acquisition purchase price and expected transaction costs, as well as to refinance the existing US$650 million (C$800 million) senior term loan B.
HBC does not currently expect to utilize the large majority of the term loan B commitments. Instead, HBC currently intends to use the proceeds from the anticipated Kaufhof Real Estate Transaction to largely fund the cash purchase price of the Kaufhof acquisition and expected transaction costs. HBC intends to reinvest any excess proceeds in the Simon-HBC JV.
The Simon-HBC JV currently intends to finance the Kaufhof Real Estate Transaction with:
A real estate term loan secured by at least 40 Kaufhof properties;
Additional debt secured by the Saks and Lord & Taylor properties that the Simon-HBC JV will own;
US$179 million (C$220 million) from Simon as per its prior equity commitment to the Simon-HBC JV;
New investment from HBC using any excess proceeds from the Kaufhof Real Estate Transaction; and
Up to US$600 million (C$739 million) in equity from third-parties or additional equity from HBC (in which case HBC would draw on its term loan B commitments).
HBC expects to retain a 65% to 85% interest in the Simon-HBC JV, depending on its investment, if necessary, in the Simon-HBC JV, which would be financed using its term loan B commitments.
Continues HBC’s Track Record of Improving Retail Operations and Unlocking Real Estate Value
The acquisition of Kaufhof and anticipated sale of at least 40 Kaufhof properties to the Simon-HBC JV represents another milestone in HBC’s strategy of unlocking real estate value while strengthening its operating business and its balance sheet.
In Canada, this strategy has included the sale of the Zellers’ leases for C$1.8 billion, the sale and leaseback of HBC’s flagship Queen Street property for C$650 million, and the anticipated sale of up to 10 HBC properties to the RioCan-HBC JV for C$1.7 billion.
In the United States, this strategy has included the acquisitions of Lord & Taylor for US$1.2 billion and Saks for US$2.9 billion followed by the US$3.7 billion independent appraisal of Saks’ flagship property in New York (to support the US$1.25 billion mortgage on the ground portion of the property), and the anticipated sale of 42 Saks and L&T properties to the Simon-HBC JV for US$1.7 billion.
In addition to surfacing significant shareholder value from its extensive real estate holdings, the HBC management team has demonstrated an ability to improve retail operations by consistently generating positive same-store-sales and sales-per-square-foot growth, maintaining stable gross margins and building a world-class all-channel experience through HBC Digital.
ABOUT HUDSON’S BAY COMPANY
Hudson’s Bay Company, founded in 1670, is North America’s oldest company. Today, HBC offers customers a range of retailing categories and shopping experiences primarily in the United States and Canada. Our leading banners – Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue and Saks Fifth Avenue OFF 5TH – offer a compelling assortment of apparel, accessories, shoes, beauty and home merchandise. Hudson’s Bay is Canada’s most prominent department store with 90 full-line locations, two outlet stores and thebay.com. Lord & Taylor operates 50 full-line locations primarily in the northeastern and mid-Atlantic U.S., four Lord & Taylor outlet locations and lordandtaylor.com. Saks Fifth Avenue, one of the world’s pre-eminent luxury specialty retailers, comprises 39 U.S. stores, five international licensed stores and saks.com. OFF 5TH offers value-oriented merchandise through 83 U.S. stores and saksoff5th.com. The Company also operates Home Outfitters, Canada’s largest kitchen, bed and bath specialty superstore with 67 locations. Hudson’s Bay Company trades on the Toronto Stock Exchange under the symbol “HBC”.
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