Macy’s takeover bid: What could happen to stores and retailers if the deal goes through?
An investor group has offered $5.8 billion for Macy’s but its real estate is estimated to be worth far more than that. What will happen to the retailer?
Macy’s, like many other department stores, has been struggling over the past decade. The famed retailer has failed to adapt to changing client preferences and shopping habits.
Since 2015, the stock price of the largest department store chain in the United States has plummeted by around three quarters from its peak at $73 per share, nearly 16 percent in the past year. On Sunday, the Wall Street Journal reported that a group of investors submitted a $5.8 billion bid to buy the remaining shares it doesn’t already own.
The investor group, consisting of Arkhouse Management, a real-estate focused investing firm, and Brigade Capital Management, a global asset manager, offered $21 per share which was an almost 23 percent over the closing price for company’s stock the day of the bid.
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Macy’s takeover bid: What could happen to stores and retailers if the deal goes through?
The takeover bid for the iconic department store is a signal that the investors believe the retailer is undervalued, especially given its real estate portfolio. “The buyout group is undoubtedly interested in Macy’s large real estate portfolio,” said Morningstar analyst David Swartz in a note.
He points out that Macy’s property holdings have “attracted activists and potential buyers in the past.” Its iconic Herald Square property is worth about $3 billion according to an estimate by JP Morgan analysts with the total real estate value around $8.5 billion, the equivalent of $31 per share.
Arkhouse and Brigade have indicated they are willing to raise the offer. However, questions remain as to whether they have the resources to execute the deal as they have never completed an operation of this magnitude previously. An investment bank has provided a letter saying that the group will be able to raise the necessary financing to get the deal over the finish line.
There is a concern though that the investors may sell off real estate for short-term gains and not inject those funds back into revitalizing the core retail business. A similar fate has befallen other retailers like Payless, Sears and Toys R Us which helped lead to their bankruptcies.