TORONTO - Hudson's Bay Co. (TSX:HBC) says it will open up to seven full-line Saks stores and about two dozen locations under a discount banner in Canada once it completes a US$2.9-billion friendly deal to acquire the U.S. luxury retailer.
"We're going to move as quickly as we can," Richard Baker, HBC’s chairman and chief executive, told analysts during a conference call on Monday.
"We think there's a lot of opportunity for us to accomplish that rollout relatively quickly."
Saks currently operates 42 stores, including its flagship Saks Fifth Avenue in New York.
HBC says it may transform some its Hudson's Bay stores into Saks locations, open new Saks stores in existing buildings or, in some cases, build new stores from the ground up.
The Toronto-based retailer says it also plans to open up to 25 Saks Off Fifth discount stores in Canada and is eyeing the possibility of starting a real estate investment trust.
Paul Swinand, an analyst Morningstar, said the deal will give HBC a portfolio of prime U.S. real estate.
"There's no way they could have accessed these real estate assets at any other price, or in any other way," said Swinand.
"These are assets in locations where you couldn't get that size of a store otherwise."
HBC's other holdings include The Bay and Home Outfitters in Canada and Lord
The combined portfolio with Saks locations would comprise more than 32 million square feet of retail space, said Baker.
"The combination of Saks and HBC real estate creates an unmatched, highly valuable North American retail real estate portfolio, with a coast-to-coast footprint serving three strong banners," Baker said.
"We will evaluate strategic alternatives to fully realize value from the combined property portfolio, including but not limited to the creation of a real estate investment trust. This will enable our company to unlock additional value and accelerate deleveraging."
HBC plans to keep Saks as a separate unit headquartered in New York.
"While there are numerous opportunities to collaborate and drive efficiencies, we will respect the integrity and uniqueness of the Saks franchise," said Baker.
"Saks is an iconic, distinctive and powerful franchise that we are committed not only to preserving but to enhancing and building. We intend to maintain and build upon Saks identity as a luxury retailer."
Some Canadian shoppers were excited to hear that more luxury brands will be available north of the border.
For the past seven years, Ottawa resident Adrian Salamunovic has been shopping at Saks when he's at his second home in Los Angeles.
His favourite brands to buy include Vince, John Varvatos and the Made
"Especially in Ottawa, there's limited selection of fashion brands for men," said the business owner.
"I'm excited about it, as a guy... The stuff they have on the shelves is always very well-selected. It is expensive. I mean, it's on the higher end of the pricing spectrum, but still reasonable, still affordable."
HBC says it will pay US$16 per Saks share plus assume debt as part of the transaction, announced early Monday after months of rumours that a deal was in the works.
HBC says it will issue US$1 billion worth of equity and $2.3 billion of debt securities to pay for Saks.
It has received commitments from the Ontario Teachers Pension Plan, which will buy about US$500 million of the equity, and Canadian private equity firm West Face Capital, which will buy US$250 million of the new HBC equity.
Hudson's Bay Co. will also issue US$1.9 billion of secured loans and US$400 million of unsecured notes.
HBC has 48 Lord
Together, the combined company will have about 320 stores, including 179 full-line department stores, and about C$7.2 billion of sales annually.
HBC has been eyeing the struggling high-end American chain for the past few months and there were reports on the weekend that a deal was close.
Saks chairman and CEO Steve Sadove said in a joint statement Monday that the deal represents a 30 per cent premium above the value of Saks on May 20, before media speculation on the deal emerged.
"We believe this transaction delivers compelling value to our shareholders and that Saks Fifth Avenue is an excellent fit within the HBC organization," Sadove said.
"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."
Saks would pay a fee to HBC if their deal doesn't go through but HBC would not specify the amount.
HBC shares were up $1.09, or 6.61 per cent, to $17.58 in midday trading on the Toronto Stock Exchange. Saks shares (NYSE:SKS) were up 61 U.S. cents, or 3.98 per cent, to $15.92, on the New York Stock Exchange Monday afternoon.
—With files from David Paddon