The tension was obvious when Hudson's Bay Co. chief executive George Heller met with journalists following the embattled company's annual general meeting in late May. Questions posed to Heller on the department store retailer's financial health were given answers tinged with antagonism. “You know what, maybe it makes great newspapers and you can sell a few extra,” Heller said, commenting on speculation the company is a takeover candidate. South Carolina takeover artist and financier Jerry Zucker–HBC's largest investor–has long been seen as the linchpin in such a deal.
Heller's combative demeanor came after the elusive Zucker, with just under 20% of HBC shares, made it clear through his spokesman he's not happy with the path down which Canada's oldest corporation (at 335 years) appears to be headed–at least in terms of financial results. The frustration, says Robert Johnston, vice-president of strategic planning at Zucker's InterTech Group Inc., is not so much the continuing losses in HBC's retail operations–it's the credit card division that makes money–as it is the “inability” of management to own up to the problems. After a disappointing 2004, HBC racked up a $41-million loss in this year's first quarter, double the amount lost during the same period last year. Johnston says he and Zucker have supported Heller's plan to boost HBC sales and profits by reformatting its Zellers and Bay chains through brighter, bigger stores, better branding and an effort to create a more pleasant shopping experience–starting with not being out of stock on basic items. But HBC's “lack of execution” on this plan, which it grandly announced in the fall of 2003, is shaking faith in the strategy, he says, and the matter of missing another quarter “brings into question the likelihood of this plan coming to fruition.” Johnston says in short order he and Zucker will be deciding “what levers to pull” to ensure “all shareholders” see value in their HBC investment, including possibly selling off the stake.
At the AGM, HBC governor Yves Fortier told investors he and other members of the board of directors still support management's efforts, but admits “patience is not infinite.” HBC's biggest shareholder, along with many other investors, can only hope that's true.