Macy's plunged nearly 16% in pre-market trading, deciding to terminate privatization acquisition negotiations with the aggressive investment group

On Monday, July 15th, Macy's, the long-established retail giant in the United States, announced that its board of directors unanimously decided to terminate negotiations with the activist investment groups Arkhouse and Brigade Capital Management. The group had attempted to privatize Macy's at a valuation of approximately $6.9 billion, but ultimately failed to reach an agreement due to financing and premium issues.

On Monday, Macy's stock price in the US stock market fell by nearly 16% in early trading. As of the close of last Friday, Macy's stock price has fallen by about 5% year-to-date, with a market value of approximately $50 billion, significantly lagging behind the S&P 500 index's increase of about 18% during the same period.

Macy's: Price Disagreement and Lack of Sincerity

Paul Varga, the Chief Independent Director of Macy's, pointed out in a press release that it was not necessary to continue efforts as there were significant uncertainties in the financing from Arkhouse and Brigade Capital.

Although the bidding parties had been trying to acquire Macy's for several months and even raised their offer to $24.80 per share earlier this month, Macy's believed that this price did not fully reflect the company's value.

Macy's stated that during the due diligence period, the company had done "far more than the usual requirements" by providing detailed store profit and loss information as well as leasing details for each location to the bidding group. They even allowed Arkhouse and Brigade to share this confidential information with over a dozen "trusted sources of financing." However, these efforts did not lead to a successful transaction.

Earlier this year, after Arkhouse's initial attempt to acquire Macy's failed, they announced plans to control this long-standing retailer through a proxy fight. In April, the two parties reached a settlement agreement, introducing two independent directors to Macy's board.

Macy's Faces Transformation

Since Tony Spring took over as CEO in February, Macy's has been undergoing a series of transformation measures, including optimizing its store network and enhancing brand performance. The company announced earlier this year that it would close approximately 150 stores bearing its name due to underperformance. At the same time, they plan to open new stores for Bloomingdale's and Bluemercury, as these two brands have performed well. They also plan to open smaller Macy's stores in busy suburban shopping centers to be closer to customers.

However, the road to transformation has not been smooth. In a high inflation environment, consumers have become more cautious about spending on non-essential items, posing a challenge to Macy's sales growth. Additionally, younger consumers are increasingly inclined towards online shopping platforms like Shein and large chain stores like Target, putting significant marketing pressure on traditional department stores like Macy's Facing these challenges, Macy's expects net sales for the current fiscal year to be between $22.3 billion and $22.9 billion, slightly lower than the previous fiscal year's $23.09 billion. The company also anticipates that comparable sales, excluding the impact of new store openings and closures, will decline by approximately 1% to grow by 1.5%.

During the earnings conference call at the end of May, Spring stated that the revitalization of Macy's stores has just begun. However, with 50 stores already seeing improved sales performance due to factors such as increased staffing, better merchandising, and promotional activities.

Arkhouse, a well-known real estate investment company led by Gavriel Kahane and Jonathon Blackwell, along with Brigade Capital Management, a firm specializing in the retail industry, have formed a bidding team. They are seeking to unlock the potential value in Macy's real estate assets and drive a comprehensive reform of the company's operations.

This strategy is not unique. In 2022, activist fund Macellum also urged another department store, Kohl's, to explore a self-sale, highlighting the active presence of activist investors in the retail industry