Macy’s
rejected an unsolicited $5.8 billion offer to take the department store chain private on Sunday, prompting the bidders to threaten to go straight to shareholders.
The stock gained 2.1% on Monday to $18.01. The shares are down 23% over the past 12 months but have surged 56% in the past three months on speculation of a buyout.
On Sunday, Macy’s issued a statement confirming that private equity firms Arkhouse and Brigade Capital made an offer to acquire the company for $21 a share on Dec. 1. The board has now rejected the bid, saying it failed to provide compelling value.
“After consultation with our advisors, the Board continues to have serious reservations about your ability to finance your non-binding proposal,” wrote Macy’s CEO Jeff Gennette in a letter to Arkhouse and Brigade.
Arkhouse issued its own statement saying it may go hostile, bypassing board approval and appealing directly to shareholders.
“We have conviction in the long-term success of Macy’s but believe that its potential will only be realized as a private company,” Arkhouse said.
Arkhouse’s interest may hinge around the company’s sizable real estate portfolio, which TD Cowen analyst Oliver Chen estimates is worth somewhere between $7.5 billion to $11.6 billion.
But as Barron’s previously reported, unlocking the value of that real estate portfolio may be harder than it seems.
“Based on our expert call series, monetization of real estate is particularly challenging given different requirements by the landlords for rezoning, limited demand for mall real estate, and the timely process for approvals,” Chen wrote in a note to clients Monday.
The probability of a deal closing is less than 40%, Chen added, although more evidence on the financing or another bidder could drive that higher.
And indeed, the offer may have some appeal to shareholders if they are frustrated with Macy’s turnaround efforts. The company, which started as a dry goods store in New York in 1858, is struggling to make itself fit for the 21st Century amid stiff competition online.
Other department stores such as JCPenney,
Nordstrom,
and
Kohl’s
have faced similar difficulties. Online retailer
Amazon
has eaten into their market share.
Macy’s has been reorganizing for years to try to lower costs and better compete with the likes of Amazon, including by closing underperforming stores and laying off employees. Last week, the company announced that it had laid off an additional 3.5% of its workforce, equivalent to some 2,350 employees. Gennette is due to step down in a few weeks, to be replaced by Tony Spring.
Write to Brian Swint at [email protected]
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