HBC to sell Lord + Taylor to venture-backed Le Tote for $100 mln

Canadian retailer Hudson’s Bay Co (TSX: HBC) has agreed to sell its Lord + Taylor department store operations to Le Tote Inc, a San Francisco-based fashion rental subscription service.

HBC will receive about $100 million and a promissory note for $33.2 million payable after two years. It will also secure a minority stake in Le Tote and two board seats.

Le Tote will gain Lord + Taylor’s brand and intellectual property, operation of 38 stores, as well as digital channels and inventory.

HBC, which is currently reviewing a $1.74 billion take-private acquisition led by Executive Chairman Richard Baker, said the agreement followed a review of strategic alternatives for Lord + Taylor.

Le Tote, which is currently raising funding for the deal, is backed by multiple investors, including Andreessen Horowitz, Azure Capital Partners, GV, Lerer Hippeau Ventures, Sway Ventures and Y Combinator.

PRESS RELEASE

HBC and Le Tote Enter Into Agreement for Acquisition of Lord + Taylor

Transaction to create new experience with fashion rental subscriptions, e-commerce and stores

Sale concludes HBC’s review of strategic alternatives for Lord + Taylor business

August 28, 2019

TORONTO–(BUSINESS WIRE)–Hudson’s Bay Company (TSX:HBC) and Le Tote, Inc., a leading fashion rental subscription service, have entered into an agreement for Le Tote to acquire Lord + Taylor. Le Tote’s proprietary technology, data and innovation combined with Lord + Taylor’s traditional store footprint, e-commerce presence and merchandise selection will offer customers a new experience in the mid-market segment.

Helena Foulkes, HBC’s CEO, said, “We’re excited to have reached an agreement with Le Tote that creates a new model for Lord + Taylor, bringing together fashion rental subscriptions with traditional retail. Following an extensive review of strategic alternatives, Le Tote’s leadership and innovative approach is the best path forward for Lord + Taylor, its loyal customers and dedicated associates. For HBC, this transaction builds upon our previous bold actions, further enabling us to focus on our greatest opportunities, Saks Fifth Avenue and Hudson’s Bay.”

Rakesh Tondon, Le Tote’s CEO and Founder, said, “Since founding Le Tote, it’s been our mission to push the boundaries of retail. We’ve strived to lead the charge in developing innovative, intuitive, value-driven ways for customers to engage and consume. We’re excited to bring Le Tote together with Lord + Taylor, a storied brand that has stood for quality, style and service for nearly two centuries. With this acquisition, we continue our journey in creating the future of retail.”

Under the terms of the agreement, Le Tote will acquire the Lord + Taylor brand and related intellectual property while assuming operations of 38 stores, Lord + Taylor’s digital channels and the associated inventory.

Le Tote expects to extend employment offers to the vast majority of Lord + Taylor’s associates.

HBC will receive $99.5 million (USD$75 million) in cash upon the transaction’s closing and a secured promissory note for $33.2 million (USD$25 million) payable in cash after two years. In addition, HBC will receive an equity stake in Le Tote, two seats on the company’s Board of Directors and certain rights as a minority shareholder.

HBC and HBS Global Properties, HBC’s real estate joint venture, will retain ownership of all owned and ground-leased real estate assets related to Lord + Taylor. For at least the initial three years, HBC has agreed to maintain economic responsibility for the rent payments owed by Lord + Taylor at the locations operated by Le Tote. Net of HBC’s distributions from HBS Global Properties, HBC expects to continue to be liable for approximately $77 million in Lord + Taylor total cash rent on an annual basis.

In fiscal 2018, Lord + Taylor represented $1.4 billion of HBC’s $9.4 billion in retail sales. HBC’s 2018 Adjusted EBITDA was $462 million, which reflects a $119 million loss attributable to Lord + Taylor, inclusive of allocated corporate expenses.

Starting in 2021, HBC and Le Tote will have options to reassess the Lord + Taylor store network. This may include HBC recapturing select locations to determine their highest and best use, including possible redevelopment into mixed-use properties with a variety of services, experiences and retail offerings. HBC has hired a team of seasoned professionals to lead the planning and execution of any redevelopment, which is an inherently complex, capital intensive, long-term project. For any recaptured or returned stores, HBC retains long-term rent responsibility, risk and costs for redevelopment.

Le Tote is in the process of securing financing for the full purchase price. The transaction is expected to close before the start of the 2019 holiday season, subject to satisfaction (or waiver) of closing conditions. If committed financing has not been obtained within forty-five days following signing, HBC has the right to terminate the agreement.

PJ SOLOMON acted as financial advisor to HBC for this transaction and throughout the review of strategic alternatives for Lord + Taylor and Willkie Farr & Gallagher LLP acted as legal advisor to HBC. Le Tote was advised by Citi, as its financial advisor, and Kirkland & Ellis LLP, as its legal advisor, in connection with the transaction.

Deal term figures in this news release assume USD:CAD = 1:1.3272.

HBC investors should refer to the company’s public filings available at www.sedar.com and at www.hbc.com for additional information and details on the transaction.

About HBC

HBC is a diversified retailer focused on driving the performance of high quality stores and their omni-channel platforms and unlocking the value of real estate holdings. Founded in 1670, HBC is the oldest company in North America. HBC’s portfolio today includes formats ranging from luxury to premium department stores to off price fashion shopping destinations, with more than 300 stores and about 40,000 employees around the world. HBC’s leading businesses across North America include Saks Fifth Avenue, Hudson’s Bay, Lord + Taylor, and Saks OFF 5TH.

HBC also has significant investments in joint ventures. It has partnered with Simon Property Group Inc. in the HBS Joint Venture, which owns properties in the United States. In Canada, it has partnered with RioCan Real Estate Investment Trust in the RioCan-HBC Joint Venture. HBC has partnered with SIGNA Retail Holdings for real estate and retail joint ventures in Europe.

About Le Tote

Le Tote is a fashion subscription service that lets women rent clothing and accessories for a flat monthly fee. Members choose the items they want to wear and can keep them as long as they like. Members also have the option to purchase items at a discount. Le Tote’s data-driven model is powered by proprietary algorithms and in-house operational solutions. Le Tote partners with hundreds of brands including French Connection, Vince Camuto, BCBGeneration, Kate Spade, Rebecca Minkoff, Calvin Klein and more. Founded in 2012 by Brett Northart and Rakesh Tondon, the Y Combinator backed company has raised venture funding from Andreessen Horowitz, Google Ventures, Azure Capital Partners, Lerer Hippeau Ventures, Simon Venture Group, Sway Ventures, Epic Ventures, Arsenal Venture Partners, Funders Club and others. For additional information, please visit www.LeTote.com or download the iPhone app.

Contacts

Investor Relations:
Jennifer Bewley, 646-802-4631
jennifer.bewley@hbc.com
Media for HBC:
Andrew Blecher, 646-802-4030
press@hbc.com
Media for Le Tote:
Emily Fox, 914-523-2365
press@letote.com