Department store Macy’s said Monday its board has unanimously decided to end negotiations with the activist group that had been looking to take the retailer privately for roughly $6.9 billion. Macy’s further noted that its decision was founded on the lack of financing certainty and the less-than-adequate value delivered in the proposal by Arkhouse and Brigade. Paul Varga, Macy’s lead independent director, indicated that the proposal offered less value than expected and completely lacked surety in financing.
The activist group has been doggedly pursuing Macy’s for some months now, recently bidding $24.80 per share. Macy’s noticed that throughout the due diligence period, it had offered adequate effort, such as detailed financials and leasing agreements for each store, to the bidding group. Macy’s, however, expressed skepticism over the proposal’s viability and credibility of the financing sources lined up by Arkhouse and Brigade.
Arkhouse had earlier threatened to launch a proxy fight for control of Macy’s after an earlier proposal was rejected, but the two reached a settlement in April that calls for the addition of two independent directors to the Macy’s board. Macy’s shares dropped about 14% Monday in early trading.
Macy’s is in the process of restructuring under CEO Tony Spring. The company plans to close about 150 stores and expand its Bloomingdale’s and Bluemercury units, which have performed better in recent years. It will also add smaller Macy’s stores in busy suburban strip malls as part of its strategic efforts.
Macy’s has been struggling with increasing sales amid high inflation that has heightened consumers’ cautiousness in spending on nonessential goods. The company had to work harder to be relevant when young consumers began shifting to online retailers like Shein, major retailers like Target, and discounted chains like T.J. Maxx rather than conventional department stores.
Macy’s forecasted net sales for this fiscal year were between $22.3 billion and $22.9 billion, a decline from the approximately $23.09 billion it posted in 2023. Comparable sales are expected to run from a drop of about 1% to an increase of 1.5% on an owned-plus-licensed basis, including third-party marketplace sales, which reflect store openings and closures, according to the company.
Macy’s former CEO, Jeff Gennette, said that the retailer was still in the early days of its flagship store revitalization process during a late-May earnings call, but did point to encouraging sales results for the first 50 stores where Macy’s had invested in more workers, better presentation of goods, and special events.
Macy’s stock had slid about 5% this year before the losses this week, cutting its market value to some $5 billion from about $20 billion in 2015 and leaving it down about 75% since 2007. Arkhouse has a history as a reputable real estate investment firm, backed by Gavriel Kahane and Jonathon Blackwell, both of whom have been behind several unsolicited bids for Real Estate Investment Trusts (REITs) over the past few years. Brigade Capital Management focuses on the retail space itself and has previously invested in established companies such as Sears and Neiman Marcus.
This bidding group aimed to unlock what it believed to be the untapped value in Macy’s real estate assets, and, at the same time, revolutionizing the company’s operations. Other department store companies have been targets of activist interventions in the recent past for similar reasons.
