Hudson's Bay, the Canadian owner of Lord & Taylor and namesake department stores, said Monday that it's buying Saks Inc. in a deal valued at $2.9 billion, a little more than two months after The New York Post reported that Saks hired Goldman Sachs to help it explore a possible sale. The $16 a share that Hudson's Bay will pay is about 30% higher than Saks' closing price on May 20, before those reports emerged.
The combined company will operate 320 stores, including 179 department stores and 72 outlets. The entity would have made about $7.2 billion in sales for 2012 and about $570 million in profit before interest, taxes, depreciation, and amortization, Hudson's Bay Chief Executive Officer and Chairman Richard Baker said in a call with investors and analysts today. Baker, a savvy investor dubbed "the Prince of Lord & Taylor" by The New York Times in a 2011 profile, is especially excited about bringing Saks into Canada and taking advantage of the company's e-commerce capabilities, as well as its extensive real estate portfolio.
It's also a boon for Saks, which hasn't been able to recover sales to pre-recession levels, and has been shuttering underperforming locations.
Here are some reasons why Hudson's Bay is buying Saks:
1. Hudson's Bay will extend coast-to-coast with Saks from its current concentration in the U.S. Northeast and Canada — particularly with Off 5th stores.
2. Canada will get up to seven full-line Saks stores, 25 Off 5th locations, and a dedicated Saks Canada e-commerce site.
Canada is already Saks.com's top international ship-to market, Baker said today.
3. Saks' real estate is worth $1.5 billion and its crown jewel, the New York flagship store, may be valued at $807.5 million, according to Citigroup analysts.
Hudson's Bay may create a real estate investment trust out of the combined portfolio, Baker said today. That may help the company raise additional cash through REIT investors, save it money on corporate income taxes, and help it rent stores to other retailers.
4. Saks' Off Fifth outlets will help clear out Hudson's Bay and Lord & Taylor merchandise.
5. "Basically, where Lord & Taylor ends is where Saks begins."
Baker says that there's "very, very little overlap" between Saks and Lord & Taylor, which is a step below Saks in terms of luxury offerings.
6. There's a chance to make Saks even more luxurious.
"We plan on renovating stores and reinvesting into the business, and continuing to work with better vendors in order to make Saks as luxurious a retailer as possible," Baker said.
7. Hudson's Bay's chief operating officer, chief marketing officer, and a key consultant came from Saks.
As well as a slew of other executives, making the transition even easier.
8. Canada has a "dearth of luxury department stores," according to Citigroup analysts.
Holt Renfrew has 10 stores in the nation, while Nordstrom plans to open its first Canadian store in the fall of next year with as many as 10 locations in the long term, Citigroup analyst Deb Weinswig wrote in a July 26 note.
9. Baker has led a successful combination before, when his company purchased Hudson's Bay in 2008, combining it with Lord & Taylor.
NRDC Equity Partners became Hudson's Bay Trading Co. after the transaction.