Macy’s Faces Battle to Go Private as Doubts Linger on Comeback Plans
Macy’s, the iconic American department store chain, is facing a tough battle as it seeks to go private amidst doubts about its ability to engineer a successful comeback with its current plans. The company’s newly appointed CEO, Tony Spring, acknowledges the need for change and emphasizes that Macy’s cannot remain the same if it wants to succeed in the future. He states that the brand will evolve, adjust its product offering, and integrate its physical and digital presence thoughtfully, but with the necessary time and support from the organization.
However, one of Macy’s activist shareholders, private equity firm Arkhouse Management, is not waiting for the results. After Macy’s rejected their initial $5.8 billion bid in January, Arkhouse announced a new $6.6 billion bid on Sunday. The firm expresses frustration with Macy’s board of directors for delaying tactics and refusal to engage with their credible buyer group. They believe that Macy’s needs more fundamental changes to save its business.
Macy’s recently announced a growth strategy called “A Bold New Chapter,” which includes closing 150 underperforming locations to reinvest in the remaining 350 stores. According to Spring, many of the closing stores are owned by the company, allowing Macy’s to tap into their real estate value. The strategy also involves improving its tech platform and opening a modest number of Bloomingdale’s, Bluemercury, and small-format Macy’s stores. However, Arkhouse’s managing director, Gavriel Kahane, believes that these incremental changes will not deliver any significant value to shareholders. He criticizes Macy’s executive team and board for focusing on minor improvements instead of addressing the core issues.
Arkhouse’s new all-cash offer values Macy’s at $24 per share, a 14.3% increase from their original proposal and a 51.3% premium to Macy’s share price on November 30, 2023. Macy’s has confirmed that it received the proposal and will review it. This news has caused Macy’s shares to rise by over 13.5%.
The battle for Macy’s future has escalated further as Arkhouse has nominated nine candidates to Macy’s board of directors, initiating a proxy battle. The shareholder meeting date is yet to be announced.
Wall Street analysts have mixed opinions about Macy’s management’s vision. Citi analyst Paul Lejuez believes that Macy’s is likely to seriously consider Arkhouse’s new bid. However, GlobalData’s managing director of retail, Neil Saunders, expresses skepticism about Macy’s capability to deliver on its growth plan. UBS analyst Jay Sole maintains a Sell rating on Macy’s stock, expecting losses to continue. Morningstar analyst David Swartz holds a Buy rating but raises concerns about the company’s shrinking size and declining revenues.
Macy’s faces tough competition from e-commerce giants like Amazon and Walmart. Spring aims to make it easier for customers to shop both digitally and physically at Macy’s. However, declining digital sales suggest that the company is losing market share in that segment. Despite the challenges, both Spring and Kahane believe that Macy’s can be modernized and thrive in the troubled department store retail space.
As the battle for Macy’s future unfolds, it remains to be seen whether the company will embrace more significant changes or stick to its current plans. With its rich history and valuable real estate, Macy’s still holds potential for success, but it will need to adapt quickly in the face of evolving consumer preferences and fierce competition in the retail industry.