More progress in Macy's buyout battle as Arkhouse negotiates to gain access to its financials
The battle for Macy's (M) future is heating up as a private equity firm's quest to take over the American classic continues.
On Thursday, Arkhouse Management and its partner Brigade said in an SEC filing that they're working on a confidentiality agreement with Macy's that would allow the firm to conduct due diligence. Arkhouse, who is a major shareholder at Macy's, first announced a $5.8 billion offer for the company in early December, then upped its bid to $6.6 billion on March 3.
While Macy's rejected the December bid — citing concerns with financing — the department store giant seems more willing to deal this time around. According to the SEC filing, Macy's board responded to Arkhouse on March 11, indicating that they find the offer "less than compelling" and would not be willing to "transact at this price level."
However, the letter said that the board was willing to proceed with negotiating a confidentiality agreement that would provide Arkhouse access to Macy's books. Arkhouse has said in the past that it may be willing to raise its offer if it can gain more financial information, a request that Macy's has denied until now.
Yet it's unclear if the increasing urgency from Arkhouse is pushing Macy's towards a deal. Prior to the latest filing, Neil Saunders, GlobalData’s managing director of retail, told Yahoo Finance rumors are floating that "Macy's is still not impressed with this deal ... they believe the company is still worth more."
He added that others believe a sale to a private equity firm may be the "wrong trajectory" for the storied company, with some speculating that Arkhouse is primarily interested in cashing out on Macy's real estate holdings.
In late February, Arkhouse's managing partner Gavriel Kahane told Yahoo Finance the firm's focus is to give shareholders a premium — via a buyout — then lean into the "iconic" retail brand and real estate.
Though department store retail has been on a downslide, Macy's “should be growing market share in that troubled space,” he said. “There are a lot of companies that thrive in industries [or] sectors that have secular headwinds in them.”
In the filing, Arkhouse said that Macy's hasn't evolved with the times, calling it "an iconic American brand that has fallen on hard times in recent years" as online retail and consumer preferences shifted.
Macy's declined to comment to Yahoo Finance on the latest filing.
Arkhouse's March all-cash offer values Macy's at $24 per share — a 14.3% increase from its original proposal of $21 per share — and a 51.3% premium to Macy’s share price on Nov. 30, 2023.
Given all the buzz, year to date shares of the department store chain are up nearly 9%, on par with the S&P 500's (^GSPC) gain. In recent years, shares of Macy's have lagged the market.
Making progress on the buyout front hasn't stopped Arkhouse from pursuing its proxy battle, which it initiated after Macy's rejected its first proposal in late January. The firm has nominated nine candidates to Macy's board of directors, and will continue with that effort. The shareholder meeting date has yet to be announced.
In the filing, Arkhouse stated that "substantial change is necessary" for Macy's to "achieve its full potential and that this change must begin at the Board level."
In the background, Macy's is trying to move forward with its growth strategy, dubbed “A Bold New Chapter.” Announced in February with its latest earnings, the plan includes closing 150 underperforming locations to reinvest in the remaining 350 stores.
CEO Tony Spring told Yahoo Finance at the time that "a good number" of the closing stores are owned by the company, which will allow Macy’s to tap into their real estate value. The strategy also includes improving its tech platform and opening a modest number of Bloomingdale’s, Bluemercury stores, and small-format Macy’s stores.
Spring, who joined Bloomingdale’s in 1987 and served as its CEO from 2014 until this past February, has claimed that the current management is looking for change as well.
"We are not going to leave Macy's as it is today. It's foolhardy to think that leaving the business as it exists today is a recipe for success in the future," Spring said.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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