Hudson’s Bay Co. (TSX:HBC) has struck a $1.6 billion deal that will see it sell its flagship Lord & Taylor property and free up office space in some of its other premier locations amid mounting pressure from an activist shareholder.
The company announced earlier this week that it will sell the Lord & Taylor space on New York’s tony Fifth Avenue to WeWork Property Advisors, a joint venture between workspace company WeWork and Rhone Capital, in a deal valued at $1.075 billion.
Lord & Taylor retail operations will continue to occupy all of the Manhattan location through the end of next year’s holiday season. The Lord & Taylor flagship location will eventually house a smaller store as well as the New York headquarters of WeWork, which provides working space and services for more than 150,000 members around the world.
The agreement will also see WeWork free up the upper floors of three HBC department stores for use: the Queen Street location in Toronto, the Granville Street store in Vancouver, and Galeria Kaufhof in Frankfurt.
In a related transaction, Rhone Capital will buy $632 million of equity in the Toronto-based retailer. HBC expects to use the $1.6 billion in proceeds from the sale and investment to reduce debt or increase cash on its balance sheet. About $501 million of that will be used to repay the mortgage on the Lord & Taylor property.
The deals come as HBC faces increased pressure from a U.S. activist investment fund that has argued Hudson’s Bay stock is worth only one-third of the real estate it owns.
Land & Buildings Investment Management called for the removal of HBC’s board, which is chaired by Richard Baker. The company announced late last week that Baker will act as interim CEO after current chief executive Gerald Storch announced his departure.
The company’s management has been under pressure for months from Land & Buildings, which estimates that HBC's real estate is worth $35 per share.
Baker said the deals will strengthen the retailer and “enable us to drive ongoing value creation.”
“HBC and WeWork have been working together to reimagine retail environments for current and future generations,” Baker said in a statement, as quoted by The Canadian Press.
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