Macy’s Rejects $5.8B Buyout Offer Likely Targeting its Real Estate Assets

Shares of Macy’s (NYSE: M) climbed 2% in premarket trading Monday after the department store giant rebuffed the $5.8 billion acquisition offer from Arkhouse Management and Brigade Capital. The proposal, announced last month, “lacks compelling value,” Macy’s said.

Arkhouse Willing to Come Back With Improved Proposal

Last month, Arkhouse Management and Brigade Capital investor group unveiled a $5.8 billion acquisition offer for Macy’s, proposing a price of $21 per share—a premium exceeding 20% based on the retailer’s share price.

On Sunday, Macy’s rejected the offer, deeming it financially unattractive and lacking credibility for granting access.

“The board has determined not to enter into a non-disclosure agreement or provide any due diligence information to Arkhouse and Brigade.”

– Macy’s said in a statement.

Macy’s CEO, Jeff Gennette, said Arkhouse’s proposal is “not actionable” and “lacks compelling value” for shareholders. Gennette emphasized the company’s openness to opportunities aligned with its best interests and shareholders.

Arkhouse affirmed its stance in response, expressing a willingness to significantly improve the original proposal if granted access to the requisite due diligence. The investor also noted that Macy’s shares experienced a 17% surge following the proposal disclosure in December.

Arkhouse believes that the largest single-day gain in the stock in over two years reflected investor backing for privatization.

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Macy’s Real Estate Holdings Valued Between $7.5B to $11.6B

Arkhouse’s acquisition offer for Macy’s comes after a challenging period for the company and the broader traditional department store sector.

Macy’s has faced challenges competing with younger online rivals and peers with smaller physical store footprints. This situation has allowed Arkhouse, a real-estate-focused investment firm, and Brigade, a hedge fund, to pressure Macy’s to consider a sale.

However, according to Reuters, Macy’s is currently not engaged in a sale process with other parties, and there haven’t been any unsolicited bidders meeting the company’s expectations for a potential deal. Sources indicate that Macy’s seeks a bidder with committed financing and a successful track record in retail buyouts.

Arkhouse and Brigade Capital’s $5.8 billion has drawn attention to the perceived undervaluation of Macy’s concerning its real estate holdings, with analysts estimating their value to be in the range of $7.5 billion to $11.6 billion. Interestingly, Macy’s total market capitalization sits at $4.83 billion.

As of the end of January, Macy’s owned 316 out of its total 722 stores, as outlined in its most recent annual report.

Meanwhile, the company announced last week that it is cutting 2,350 jobs and closing five stores to streamline operations.

Do you think Arkhouse and Brigade Capital will return with a significantly improved offer following Macy’s rebuff? Let us know in the comments below.

Disclaimer: The author does not hold or have a position in any securities discussed in the article.