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Hudson's Bay privatization plan opposed by proxy adviser, minority shareholder

Hudson's Bay Co. privatization deal with a shareholders group led by Executive Chairman Richard Baker is facing strong opposition after a minority shareholder filed a lawsuit against the company and Baker and proxy adviser group Institutional Shareholder Services, or ISS, recommended shareholders to oppose the deal.

In October, the department store chain accepted a C$1.9 billion offer worth C$10.30 per share from Baker-led shareholders group, which owned a combined 57% stake in the company. The group includes its largest shareholder Rhone Capital LLC and office-space sharing start-up WeWork's property arm.

On Dec. 6, Ortelius Advisors LP, which holds a 0.5% stake in the company, filed a lawsuit at Ontario Superior Court of Justice against the company and Baker accusing them of making a "concerted effort to disenfranchise non-insider shareholders and oppress the value of [Hudson's Bay] shares" and misleading shareholders with "misrepresentations and omissions."

The lawsuit alleged that as the executive chairman of the company, Baker acted in an "oppressive and prejudicial manner" to suppress stock gains and help facilitate the consortium's bid to take the company private. The lawsuit also accused Baker of lowering the value assigned to the company's real estate, including its flagship Saks Fifth Avenue property in New York.

"Ortelius believes that Mr. Baker acted in an oppressive and prejudicial manner by purposefully coupling transactions that he knew would create a ceiling for the share price and manufacturing a consortium bidding group years in advance of the timing of his issuer insider bid," said Peter DeSorcy, managing member of Ortelius Advisors.

"[Baker] knew that the existence of this consortium would discourage competing bids from arising, handcuff any special committee by effectively preventing it from being capable of ever accepting any superior proposal, and guarantee that no competing bid could ever proceed."

The retail company recently rejected an unsolicited proposal by its third-largest individual shareholder Catalyst Capital Group to acquire the company, saying the transaction is "not reasonably capable of being consummated" due to opposition from Baker-led shareholders' group.

Catalyst Capital, which owns a 17.5% stake in the company, had challenged the group's offer with a C$11-per-share all-cash counterproposal, saying that the C$10.30 per share offer by the Baker-led consortium was "inadequate." It has approached Ontario Securities Commission to "permanently prohibit" the shareholder group from acquiring Hudson's Bay securities.

Separately, ISS asked shareholders to vote against the privatization plan by Baker-led group after the bid was topped by an offer from Catalyst, Reuters reported.

ISS said in a note there was "no legitimate rationale from a governance perspective for recommending shareholders accept a lower offer," according to the report

Hudson's Bay did not immediately respond to a request for comment.