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Macy's board should probably push for a little more money, then exit stage left into private ownership.
Macy's received a $5.8 billion buyout offer from real estate investor Arkhouse Management and asset manager Brigade Capital Management, a source familiar with the matter confirmed to Yahoo Finance. The offer — which values Macy's at about $21 a share — was reportedly submitted on Dec. 1.
A higher offer could be in play upon the investor group doing their due diligence.
The Wall Street Journal first reported the news. Macy's declined to comment to Yahoo Finance.
The offer price marks a 32.4% premium to Macy's closing price on Nov. 30. Shares of Macy's rose 19% on Monday to close at $20.78.
Morningstar analyst David Swartz told Yahoo Finance Live that Macy's board should strongly consider the offer, as it's not a lowball and appears fair.
Swartz believes fair value for Macy's is around $25 a share, still light years from its all-time high of $70 in mid-2015.
The reason many on the Street think a deal for Macy's could be done around the current offer price is twofold.
First, Macy's has already monetized a good portion of its most prized real estate holdings.
From 2015-2016, Macy's netted about $653 million from selling buildings (such as a key San Francisco location) or space in those buildings, according to Yahoo Finance calculations.
Since then, however, Macy's has been unable to extract a fresh stream of real estate asset sales — likely reflective of the difficulties in the retail real estate market and post-pandemic population shifts. Rising interest rates over the past two years haven't helped it get big deals done, either.
With an offer in hand, Macy's could deliver value certainty for its real estate holdings to shareholders — certainly not guaranteed in the future as the move to online shopping decreases demand for brick-and-mortar spaces, among other considerations.
Secondly, Macy's ability to maintain profitability in the coming years is in doubt as e-commerce grows and discount chains such as TJX Companies (TJX) continue their aggressive expansion.
Wall Street likes to refer to these challenges as "secular," meaning they are structural in nature and only likely to worsen in terms of impact on a company's profits.
"We have long written that because department stores sell 'other people’s stuff,' they face secular challenges as the world moves more and more to e-commerce. Mall-based department stores such as Macy's have additional challenges in that mall traffic had been declining significantly in the years prior to the pandemic," Citi analyst Paul Lejuez wrote in a client note.
"While traffic to brick-and-mortar stores has rebounded somewhat since the pandemic, we expect a resumption of the mall store traffic declines in the coming years," he added.
The magic of Macy's right now may just be the board giving private ownership a shot.
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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