Hudson’s Bay Co. (TSX:HBC) is selling its Lord & Taylor Fifth Avenue building in New York in a deal valued at $1.075 billion and partnering with workspace company WeWork.
In a related transaction, Rhone Capital will buy $632 million of equity in the Toronto-based retailer.
Richard Baker, HBC’s executive chairman and interim CEO, said Tuesday the deals will strengthen the retailer and “enable us to drive ongoing value creation.”
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 lease the upper floors of three HBC department stores: the Queen Street location in Toronto, the Granville Street store in Vancouver and Galeria Kaufhof in Frankfurt.
“HBC and WeWork have been working together to reimagine retail environments for current and future generations,” Baker said in a joint statement.
“The acquisition by WeWork Property Advisors of the Lord & Taylor flagship building on Fifth Avenue is a statement of intent and commitment by WeWork to New York City,” said Adam Neumann, the company’s co-founder and CEO.
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 Monday for the removal of HBC’s board, which is chaired by Baker.
HBC shares were up 48 cents or about six per cent at $12.23 in late-morning trading on the Toronto Stock Exchange.
Under the deal announced Tuesday, Lord & Taylor retail operations will continue to occupy all of the Manhattan location through the end of next year’s holiday season. After that, Lord & Taylor will occupy a smaller redesigned space in the building.
HBC and WeWork plan to work together across the Canadian company’s global real estate portfolio and product offerings.
They said WeWork’s members will be able to participate in exclusive HBC sales online and in store, and HBC customers to have access to WeWork’s We Membership platform.
On the financial side, 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.
Rhone has agreed to pay $12.42 each for nearly 51 million HBC convertible preferred shares. They can be converted into an equal number of HBC common shares, which represent a 21.8 per cent stake in the company.
Rhone and WeWork will also each have the right to appoint a representative to the HBC board of directors.
HBC says the private placement is subject to approvals by regulators in Canada and the United States, expected in November. It expects to close the Lord & Taylor real estate transaction by Aug. 10, 2018.