Macy’s has officially announced the cessation of negotiations with the activist group that had been attempting to take the retailer private for approximately $6.9 billion. The decision was made unanimously by Macy’s board of directors, citing issues related to financing and premium as insurmountable obstacles. The lead independent director of Macy’s, Paul Varga, expressed the board’s conclusion that the proposal from Arkhouse and Brigade lacked certainty of financing and failed to deliver compelling value.
Increased Offer
Despite months of efforts from Arkhouse and Brigade to acquire the iconic retailer, Macy’s board deemed the offer inadequate. The bidders had recently upped their bid to $24.80 per share, following several previous price increases since initiating the takeover attempt the year before. Moreover, Macy’s emphasized that they had gone beyond standard due diligence practices by providing detailed store-by-store profit and loss information as well as leases for each location to the bidder group. Additionally, Arkhouse and Brigade were granted permission to share this confidential data with more than a dozen financing sources.
Settlement and Proxy Fight
After facing initial rejection, Arkhouse had declared its intention to launch a proxy battle for control of Macy’s earlier in the year. However, the two parties reached a settlement in April, resulting in the addition of two independent directors to Macy’s board. Despite these developments, Arkhouse has not issued a comment following Macy’s decision to cease negotiations. As a consequence, Macy’s stock experienced a significant decline of approximately 14% during early trading on Monday.
Macy’s has been undergoing a turnaround initiative led by CEO Tony Spring, who assumed the role in February. The retailer announced plans to close around 150 Macy’s stores while focusing on expanding its Bloomingdale’s and Bluemercury brands, which have shown stronger performance. Additionally, Macy’s is pursuing the opening of smaller stores in suburban strip malls to reach a broader customer base. However, the company’s efforts to boost sales have been hindered by rising inflation and changing consumer preferences.
Macy’s faces tough competition from online retailers like Shein, mass merchants such as Target, and off-price chains like T.J. Maxx, as modern shoppers seek alternative shopping experiences. Despite projecting net sales between $22.3 billion and $22.9 billion for the fiscal year, Macy’s anticipates a decline in comparable sales. The company is striving to revitalize its namesake stores by enhancing staffing, merchandise displays, and introducing special events to improve customer engagement.
Investment Firms Involved
Arkhouse, led by Gavriel Kahane and Jonathon Blackwell, is renowned for real estate investments and has pursued unsolicited bids for REITs in recent years. On the other hand, Brigade Capital Management specializes in retail companies, having previously invested in Sears and Neiman Marcus. Together, the bidding consortium aimed to unlock hidden value within Macy’s real estate assets while transforming its operational framework. This strategic approach mirrors similar activist actions targeting department store chains in the recent past, such as the call for Kohl’s to explore a sale in 2022.
Macy’s decision to terminate private buyout negotiations underscores the complexities involved in such high-stakes deals and the challenges faced by traditional retailers in a rapidly evolving marketplace. As the company continues its transformation journey under new leadership, the path to sustained growth and shareholder value creation remains uncertain amidst intensifying competition and shifting consumer preferences.