Macy’s shares jump nearly 20% on reported $5.8B buyout bid to take retailer private
Macy’s shares soared nearly 20% Monday following reports that an investor group offered $5.8 billion to buy the iconic department store chain and take it private.
Real-estate focused investing firm Arkhouse and Brigade Capital Management, an asset management company, submitted a proposal to acquire the Macy’s stock they don’t already own on Dec. 1, people familiar with the matter told The Wall Street Journal on Sunday.
The outstanding shares were priced at $21 a share, per The Journal — a 32.4% premium from Macy’s $15.86 closing price on Nov. 30.
Macy’s operates 500-plus stores across the US under its banner, plus some 85 locations of its higher-end sister store, Bloomingdale’s.
The takeover bid took many by surprise, industry insiders told The Post, leading to speculation whether the hedge funds are looking to gain control of a real estate portfolio estimated at more than $6 billion.
The properties include the flagship Macy’s location at Herald Square, home to the annual Thanksgiving Day Parade, as well as Bloomingdale’s longtime home at Third Avenue and East 59th Street.
“It really came out of nowhere,” one high-level retail executive who did not want to be identified said Monday. “But those guys understand real estate really well, so I assume this is about Macy’s real estate portfolio.”
This retail exec said it’s also possible that the hedge funds are trying to ignite a bidding war for Macy’s to lift their own stakes or “they have a really good business plan and they think they can make substantially more money than Macy’s is making today.”
Despite already offering a premium for the outstanding shares, the investors have indicated that they would be willing to raise their offer based on due diligence, according to The Journal.
The stock, which was down 17% on the year, closed above $20 on Monday — a 19% increase from its close on Friday.
Despite the rally, the price is a far cry from Macy’s $70-a-share peak in 2015, when the rise of digital retailers took a toll on business.
The outlet reported that an investment bank has already provided a letter of support for the two firms to raise the necessary financing to bring the deal to the closing table.
Both Arkhouse and Brigade Capital already own a big position in Macy’s through Arkhouse-managed funds, though it wasn’t immediately clear just how many shares the group currently has.
Representatives for Arkhouse, Brigade Capital and Macy’s declined to comment.
Macy’s board of directors has reportedly met to discuss the offer, though it’s unclear what the retailer’s next move will be.
The $5.8 billion deal values the company at more than $1 billion more than its current market cap.
Macy’s has struggled in recent years to keep up with the ever-changing consumer landscape, which has seen shoppers ditching in-store experiences for online marketplaces, where competition is stiffer.
Meanwhile, Macy’s has expanded its portfolio scooping up skin-care chain Bluemercury in 2015 — which now has more than 150 locations — and 25 private labels, including I.N.C., Charter Club and Alfani.
In Macy’s 2022 fiscal year ended on Jan. 28, the company generated about $1.2 billion of profit on $24.4 billion in revenue — a slight decrease from the $1.4 billion of profit on $24.5 billion in revenue in 2021.
The department store’s decrease in sales is no doubt outweighed by its cultural significance thanks to the annual Macy’s Thanksgiving Day Parade.
If the offer inspires other investors to jump, it likely won’t be from other retailers, noted Richard Kestenbaum, a partner at Triangle Capital.
“The department store format is among the least attractive right now because no big ideas to save or resurrect it have emerged from existing retail thinking,” Kestenbaum wrote in a blog post.
An investor would likely “contemplate radical change in the business,” Kestenbaum added, including selling off pieces of Macy’s like Bloomingdales or Bluemercury.
Neil Saunders, managing director at GlobalData, said there would be “some short-term gains” to actions such as an e-commerce spinoff. But the retail side of the business could find itself in “the worst of all worlds” without reinvestment of those profits to support it, Saunders said.
“Macy’s would lose its safety net of solid assets and the low store costs that accrue from the ownership of shops,” he wrote.
Shareholder activists and private investment management company Starboard Value built up its stake in Macy’s back in 2015 in a bid to get the company to sell its prime real estate, estimating at the time that the move could boost Macy’s share price by more than 70%, according to The Journal.
Then in 2017, Canada’s Hudson’s Bay Co. reportedly knocked on Macy’s door.
Hudson’s Bay, which owns Lord & Taylor and Saks Fifth Avenue department stores, wanted to add Macy’s to its portfolio for an undisclosed amount, though the deal never crossed the finish line.
More recently, in 2021, Jana Partners — which had taken a 1.5% stake in the company the year prior — had urged Macy’s to spin off its e-commerce business like its luxury department store rival Saks Fifth Avenue had done.
Macy’s ultimately opted not to split its online business. “We are more confident as one integrated company,” Macy’s CEO Jeff Gennette said at the time.
Gennette — who’s set to retire next year and be replaced by Bloomingdale’s boss Tony Spring — has been executing a turnaround effort that turned down deals with shareholders in favor of shuttering underperforming locations and opening smaller-scale Macy’s department stores.
