Saks Fifth Avenue announced Monday it has agreed to be sold to Hudson’s Bay, which operates Canada’s largest name-shake retail chain and, since 2006, department-store chain Lord & Taylor.
The deal values the 90-year-old specialty and luxury retailer at $2.9 billion, including $500 million of Saks’s debt obligations. If it goes through, the transaction will bring together three of the retail industry’s most famous brands — Hudson’s Bay, Lord & Taylor and Saks Fifth Avenue.
The combined company would operate 320 stores, including 179 full-line department stores, 72 outlet stores and 69 home stores throughout the United States and Canada, along with three e-commerce sites. In 2012, the three retailers had total sales of $7 billion.
“This exciting portfolio of three iconic brands creates one of North America’s premier fashion retailers,” said Richard A. Baker, Hudson’s Bay’s chairman and chief executive. According to a joint press release, Saks and Hudson’s Bay aim to create “a leading North American retailer that will address broad consumer spectrum across the luxury, mid-tier and outlet retail sectors.”
Saks shareholders will receive $16 per share in cash for their shares in the company, 4.5 percent higher than Saks’s market closing price Friday.
Steve Sadove, the Saks chairman and chief executive, said the transaction “delivers compelling value” to the company’s shareholders. The offer price “represents an approximate 30 percent premium to the May 20, 2013, closing price, the day before media speculation began” about the sale, he said.
Private-equity firm Kohlberg Kravis Roberts was reportedly considering investing in Saks and merging it with rival Neiman Marcus, leading to a spike in the price of that stock.
According to Monday’s announcement, there is a 40-day “go-shop” period, during which Saks may still seek proposals from other interested parties. The deal is also subject to shareholder and regulatory approval.
Hudson’s Bay says it expects to create significant economies of scale, achieving annual synergies of $97.3 million within the first three years through cost-cutting and operational efficiencies. The company also hopes to drive future growth by introducing brick-and-mortar Saks stores into Canada, which is Saks.com’s largest international ship-to market.
The merger will be financed by assuming $1.9 billion of new loans and by issuing $1 billion of new stock (with the Ontario Teachers’ Pension Plan and West Face Capital agreeing to provide three-quarters of the equity funding) and $400 million of new bonds, and by an unspecified amount of cash.