Macy's (M) is starting the year after overcoming rough weather.
The once-beloved department store faces an uncertain future after it on Sunday rejected a takeover offer from one of its shareholders, Arkhouse, and its partner Brigade Capital Management.
Macy's cited financing issues as the reason for the rejection, but Arkhouse said it had a letter from investment bank Jefferies Group confirming its ability to raise funds. Neither side elaborated on what the financial concerns were.
But Ark House Managing Director Gabriel Kahane told Bloomberg TV that the investment firm would be willing to share more about the financing if Macy's signed a non-disclosure agreement and gave the company access to due diligence information. , said he would be willing to increase his offer. Macy's said in a release that it does not intend to honor either request.
The original offer, made on Dec. 1, would have taken the company private for $21.00 per share, a 32% premium to Macy's stock price at the time.
The 165-year-old department store is currently trying to rebuild its sluggish business and must contend with the risk of missing out on good offers. If Macy's accepts the offer, it has three options, said veteran executive and retail expert Jan Kniffen.
He told Yahoo Finance Live that Ark House could come back with a higher bid, another potential buyer could make an even higher offer, or someone could find “better financing.'' He said the company could also pitch plans that would provide “procurement opportunities.”
Ark House did not disclose details of its financing plans, but Kniffen said heavy leverage could have a negative impact on the retailer.
TD Cowen managing director Oliver Chen agreed that funding concerns were “feasible” given the “high interest rate environment”. Mr. Chen said there was less than a 40% chance that the deal would continue. But Ark House may have a bigger motive.
“No matter what they did, [is] “It's brought a lot of attention to Macy's and in some ways forced everyone to analyze how that property is so valuable,” Chen told Yahoo Finance. He added that considering this, there is a possibility that another suitor will come to visit. The company now needs to take clear steps to maximize shareholder value, including “re-outlining” its concrete plans for real estate.
Macy's real estate alone could be worth $8.5 billion, Kniffen said. Some told Yahoo Finance in December that the company's value could rise further, and many believe the company's robust real estate portfolio makes it a likely acquisition target.
A new owner could strip or sell Macy's valuable assets, ultimately leaving the company with what it once was.
“Macy's board and management have to have some level of concern that they end up in a Sears-like situation,” said Morningstar analyst David Swartz.
Ark House's plan to unlock value is likely to mean a “very different trajectory for Macy's,” said Neil Saunders, managing director of retail at GlobalData. The company is one of the last surviving department stores. J.C. Penney, Lord & Taylor, Stage Stores, Bon-Ton, Belk and Sears have closed about 1,500 stores since 2018, according to JPMorgan.
Short-term investors focused on rising stock prices could see a potential positive in the renewed focus on Macy's, Chen said.
But the bigger problem, Swartz said, is that shareholders are not currently benefiting from Macy's real estate portfolio, such as its flagship store in New York City's Herald Square.
Although the company beat conservative expectations in its latest quarterly results, its stock was down 45% from five years ago before the deal was announced in December.
As of Monday, the stock was still down 28% compared to five years ago. Competitors Nordstrom and Kohl's are down more than 60%. If this trend continues, Macy's may come to regret passing on this offer.
“They don't want to be in a situation where, two years later, people are regretting not taking the offer or not necessarily taking it. I hope they at least consider it.” he said.
In 2018, Nordstrom rejected a takeover offer from the Nordstrom family, which valued the company at $50 per share, below the trading price at the time.
The company's stock is currently trading below $20. “There are risks in not pursuing these proposals,” Swartz said, adding that going private could bring Macy's “significant changes” to its declining business model.
And the company could be in for a new battle — the board's director nomination window opens on Saturday and ends on February 19, according to its proxy filing.
Saunders said Arkhouse “may use the nomination process to bring certain individuals and supporters to the Macy's board.” “There is no guarantee of success,” and doing so “would likely create an adversarial relationship with Macy's management.”
Acquisition or not, Macy's future will likely look very different than it does today. The company laid off more than 2,300 people, or 3.5% of its workforce, last week, indicating the company's outlook for the holiday season and 2024 is not as strong, Swartz said.
The company also announced a change in leadership, with Bloomingdale's CEO Tony Spring expected to take over the reins in February from Jeff Gennette, who has served as CEO since 2017. It is in the midst of.
Kniffen said some of the moves, such as opening smaller store formats and closing less productive stores, are on the right track. But Chen said more efforts are needed to increase shareholder returns, including differentiating stores, attracting younger consumers and launching a marketplace.
But it's clear that Macy's will be fighting for survival.
“If the industry continues to move forward the way it has been, [Macy’s] It will survive in the long run. “There's a Rise of Shayne kind of competition going on,” Swartz said.
“The apparel and retail industry as a whole is changing rapidly, and the transition to department stores is not progressing.”
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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter @brooke di palma Or email bdipalma@yahoofinance.com.
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