After a report about a potential buyout bid for Macy’s in the Wall Street Journal, Macy’s has found itself in the spotlight as action on the stock market drew attention to the unconfirmed rumors and analysts began to speculate on the likelihood of such a transaction.
Although any proposed deal along the lines reported in the Wall Street Journal story could have its drawbacks, at least one analyst thinks it’s a buyout worth exploring.
Macy’s stock jumped from $17.39 on Friday to $20.24 just after the market opened on Monday and proceeded to a peak of $21.21 before settling back to $19.78 early the next day and making small gains through the morning. By late morning on December 12, the company share price was $19.74.
The Wall Street Journal reported Arkhouse Management and the Brigade Capital Investor Group approached Macy’s with a $5.8 Billion buyout bid, or $21 per share. Asked for comment, representatives for Macy’s and Arkhouse declined, while Brigade did not respond to the request.
In immediate response to the rumors, Morgan Stanley analyst Alexandra Straton stated in an investor note the price reported could be considered low and seems to be a real estate play on first look, although she added the media reports suggested that the investors might go higher after due diligence. At the same time, Straton pointed out that Macy’s, having declined comment on the rumored bid, might not be willing to entertain any offer. How the companies involved will respond to any potential transaction negotiation is difficult to predict at this point, she added.
Morningstar senior equity analyst David Swartz said in his own research note the bid as reported was worth Macy’s consideration. The offer is below Morningstar’s $25 per share fair value estimate, he indicated, but it is a premium to recent share prices. Swartz reiterated Brigade, a hedge fund with a history of investments in retail, and Arkhouse, a real estate investor, might be willing to raise their bid after their due diligence review.
With Macy’s significant liabilities, including $3 billion in long-term debt, and Morningstar’s “firm” view that the retailer lacks a competitive advantage in its market, allowing an acquisition process on the reported lines to advance could be smart, according to analysts. Positives for a potential bidder include more than 40 million loyalty members, a large base of credit card holders and e-commerce sales estimated at more than $7 billion this year, Swartz maintained. Although the company’s large real estate portfolio is a potential attraction, Swarz warned the value of this real estate can’t be firmly established, and Macy’s efforts to monetize it have generated limited shareholder value thus far, making any deal outlook a bit more murky.
