Back in October 2003, one of the headlines in our Contra the Heard investment letter was “Comrade Heller’s 5-Year Plan,” referring to George Heller who steers the Hudson’s Bay Co. At that time, his goal was to increase sales to $9 billion a year and ring up profits of $2.85 a share.

We questioned whether this blueprint was “any more realistic than those dusty tomes from the former Soviet Union.” At the heart of our skepticism was the fact that management had little to show to date for four years of restructuring and retooling.

Flash forward, and our foresight is now almost hindsight. Sales in fiscal 2005 were $7.069 billion, well down from the $7.446 billion reckoning of 2002. Profits were 86 cents a share, not even a third of the goal. The road remains long.

One who perceives this route as taking far longer than expected is Jerry Zucker, head honcho of Maple Leaf Heritage Investments. After accruing the largest ownership position in HBC (almost 20 percent), he presented management with a $15.50-a-share offer in August 2004 and suggested that two seats on the board of directors be allotted to his choices. Both propositions were flatly rejected.

Zucker jumped back into the fray after HBC was caught spinning its wheels in the first half of 2005, when revenues receded 1.5 percent, losses doubled (and then some) to $65 million, and management proposed to sell off The Bay’s credit-card business. This time, Zucker decided to make his offer directly to shareholders, to the tune of $14.75 a share. But Jerry, we really preferred the previous enticement.

While many financial pundits have been lashing out at The Bay, portraying it as an in-the-doldrums money-loser, what mustn’t be overlooked is the fact that HBC has made a profit every year of this century. That indicates that, while the formula certainly has flaws, the company will in all likelihood continue to make money — albeit with the odd crappy year thrown in.

At this point, with the stock trading in the $15.25 range — above the Zucker offer — the market is indicating that another bid will arrive. We at Contra the Heard think this is very likely; potential suitors include Federated Department Stores, JP Morgan Chase, Sears, Target, Bain Capital and Kohlberg Kravis Roberts, along with current management.

We also note that Zucker has a history of being willing to raise his price, as we experienced back in 1997 when he was kind enough to up the stakes to purchase our position in Dominion Textile. That possibility is even greater this time.

How does this outfit’s value compared with the $1.1 billion bid? The credit-card business registers at $600 million plus, while $700 million would be a conservative estimate of the real estate holdings. Toss in the inventory and the amount it would cost to build an enterprise of the magnitude of The Bay, Zellers and Home Outfitters. Add in the goodwill associated with the oldest Canadian enterprise. Plus future profits.

We purchased HBC in 2003 at $8.50, a number that was cheap relative to the book value that currently resides above $30. Anyone who buys this enterprise for less than $20 will get a bargain. At the price Zucker is offering, he’s looking at a steal.