Richard Baker, governor and executive chairman of Hudson’s Bay Co., is believed to have a partner in China to help finance a deal to buy Macy’s.
Baker was said to be in Hong Kong this week meeting with the potential Chinese investor, whose identity could not be learned. “He’s not going to be able to do it alone. He needs a partner — that’s for sure,” said a retail source.
Baker’s quest for a partner could have extended beyond Asia, but on the Hong Kong trip he was accompanied by Don Watros, president of HBC International, one source said. Watros worked on HBC’s acquisition of the Galeria Kaufhof department store chain from Germany’s Metro Group in 2015 and has been leading that integration. He was also instrumental in orchestrating HBC’s deal to buy Saks Fifth Avenue in 2013. HBC also owns Lord & Taylor, Hudson’s Bay, Saks Off5th, Gilt, Galeria Inno and SportArena. The Lord & Taylor and Hudson’s Bay department store deals were financed extensively by debt from an Abu Dhabi sovereign wealth fund.
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“Don is Richard’s longtime chief of acquisitions,” said the source. “They were spotted together in Hong Kong this week.”
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An HBC official declined comment.
HBC could tap Thomas Lau, who heads up Lifestyle International Holdings, the operator of the Sogo department stores. He and his brother Joseph are among the richest individuals in Hong Kong.
There is also the Cheng family, which is involved in retail with Chow Tai Fook Enterprises Ltd., a diversified, Hong Kong-based company engaged in property development, hotels, casinos, transportation, telecommunications, and also has Hearts on Fire, the diamond jeweler.
Other potential investors: Gaw Capital, a large Chinese real estate developer; Fung Retailing, Macy’s partner in the department store’s e-commerce business in China; Shanghai-based Fosun International, one of China’s largest private conglomerates, which recently started investing in U.S. real estate and purchased 28 Liberty St. in Manhattan, and Shanghai’s Greenland Group, a major real estate player with ultrahigh-rise buildings, large urban complex projects, high-speed rail station business districts and industrial park development.
If Baker doesn’t secure a deal for Macy’s, he could shift his efforts back on Neiman Marcus Group, which has been on his radar for years and would represent a much smaller acquisition. Baker is a savvy dealmaker with an eye for undervalued real estate, which Macy’s has.
At $27 billion in annual volume and over 700 stores, Macy’s would be a big nut for HBC, with about U.S. $11 billion in annual volume, to swallow. Still, there would be synergies, best practices, access to different brands and designer labels, retail talent, a lot of volume and some valuable, owned-flagship properties, such as Herald Square in Manhattan and on State Street in Chicago.
On the downside, many consider Macy’s to be a broken business in need of a major fix, though Baker believes in the department store model. Macy’s is in the process of shuttering more than 60 stores this year and about another three dozen in the next few years, and is working to turn around negative sales trends.
HBC has $14 billion in real estate and with a partner would have the wherewithal to orchestrate a deal with Macy’s. One source speculated that a deal could be structured similarly to the purchase of Kaufhof, where real joint ventures were established with no debt or equity involved, to fund the acquisition. Some analysts believe real estate developers Simon Property Group, General Growth Properties and Brookfield Asset Management could be potential interested parties here, involving HBC selling and leasing back properties. Brookfield is already working with Macy’s to redevelop and monetize up to 50 properties.