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Macy’s received a $5.8 billion buyout offer from an investor consortium in an apparent bid to take America’s largest department store chain private to monetize its extensive real estate holdings.
Arkhouse Management, an investment firm that seeks to “unlock unrealized equity value caused by the mispricing of real estate assets in the public market,” and Brigade Capital Management, a global asset manager, offered $21 a share for Macy's on Dec. 1, according to The Wall Street Journal, which first reported the news.
The offer represented a 32.4% premium from Macy’s $15.86 closing price on Nov. 30.
The investor group already has a stake in Macy's through Arkhouse-managed funds and has discussed the proposal with the department store chain, whose board subsequently met to discuss the offer. The group indicated a willingness to raise the offer subject to due diligence.
Department stores have been a frequent target of takeover attempts over the past several years by investors looking to take advantage of prime real estate, including recently with Kohl’s.
Macy’s real estate properties include the iconic Herald Square, which J.P. Morgan analysts have estimated is worth about $3 billion. Overall, J.P. Morgan places Macy's real estate value at $8.5 billion, while investment bank Cowen in 2022 valued Macy's real estate between $6 billion and $8 billion. In 2015, activist hedge fund Starboard Value estimated that Macy's real estate could be worth over $20 billion.
As of Friday’s close, Macy's total market capitalization was $4.8 billion, with shares closing at $17.39. On Monday, Macy’s closed at $20.78, up $3.39 or 19.5%, on the New York Stock Exchange.
Macy's, which also owns Bloomingdale’s, has long struggled against heightened competition, including online players, fast-fashion chains, and apparel off-pricers. Macy’s shares peaked at $70 in 2015. Shares this year have been under pressure as inflation has squeezed discretionary spending, including on apparel.
Macy’s has lately focused on cost-containment initiatives and closing lower-performing stores while investing in smaller-scale stores, localized assortments, and e-commerce expansion to revive growth. The buyout offer comes as Jeff Gennette, Macy’s CEO since 2017, is set to retire and be replaced by Bloomingdale’s boss Tony Spring in February 2024.
According to The New York Times, Neil Saunders, managing director of GlobalData, said he was wary of such deals. “An investor group that sells off real estate and perhaps takes other actions such as spinning off the e-commerce business, would certainly make some short-term gains,” Saunders said in a statement. “But unless some of those profits were reinvested in revitalizing the core retail business, it would leave Macy’s in the worst of all worlds.”
Sears started the trend of monetizing real estate when it raised $2.5 billion by siphoning off 254 stores in 2015 into a real estate investment trust (REIT). As part of its bankruptcy exit in 2020, JCPenney’s lenders swapped their debt for control of 160 store locations and all of the retailer’s distribution centers, which were rented back to the landlords. Hudson’s Bay Company — the parent of Hudson’s Bay, Saks Fifth Avenue, Saks OFF 5TH, and The Bay — has been particularly active in monetizing real estate in recent years.