Two investment firms, Arkhouse and Brigade Capital, have reportedly made $5.8 billion in bids to acquire Macy's. This sends the company's stock soaring by more than 16% in trading early Monday, December 11, as reported by the Wall Street Journal.
According to CNBC's sources, the retail giant is valued at $21 per share in the deal. On Friday, December 8, Macy's shares ended the day at just over $17, representing a decline of around 17% from the beginning of the year.
Sources close to the matter have indicated that, after due diligence, real estate investment business Arkhouse and asset management firm Brigade Capital would be prepared to make bigger bids. Notably, Macy's has been struggling to compete with internet retailers, and the company is already paying a premium for it.
Equity in Real Estate
There are 722 Macy's stores spread over 43 states plus Washington, DC; Puerto Rico, and Guam. It runs over 500 Macy's shops, 55 Bloomingdale's stores (which are more upmarket), and 160 Bluemercury stores (which it bought in 2015), all under the Macy's name.
Neil Saunders, a retail analyst with GlobalData, said that Macy's real estate holdings are probably where Arkhouse finds value. "An investor group that sells off real estate and perhaps takes other actions such as spinning off the ecommerce business, would certainly make some short-term gains," he told CNN.
But, according to Saunders, Macy's would suffer as a business if they pursued this plan. He predicted that Macy's would face "the worst of all worlds" if the company did not spend some of its earnings reviving its core retail operation.
Struggle for Traditional Department Stores
Traditional department shops like Macy's have been struggling for decades. A lower portion of the retail pie goes to Macy's due to competition from both online retailers like Amazon and large box businesses like Walmart and Target. These stores allow consumers to purchase food, clothing, and other home items all in one place.
Store closures have been a cost-cutting measure for Macy's in recent years. A total of 280 full-service department shops operating under the Macy's and Bloomingdale's names have closed in the last nine years, a reduction of one-third.
Compared to the same period last year, its net income dropped 74% in the first half of the current fiscal year. Stores that had been open for at least a year saw a 7% decline in sales.
From a high of $73 per share in June of 2015, the share price has likewise fallen. Although the $5.8 billion offer is up 32% from Friday's closing value, it is down 75% from the highest offer in 2015. Ever since then, Macy's has wasted $3 billion trying to stem the fall of its stock price via share repurchases.
