Arkhouse raises the bid for Macy's; Could JWN be on its radar if the offer falls though?

Arkhouse Management Co. and Brigade Capital Management, a real estate-focused investing firm and a global asset manager, respectively, have increased their offer for Macy's by 14%, or nearly $1 billion, after the department store operator rejected their previous proposal as too low. This new offer represents a roughly 33% premium to where Macy's shares closed on Friday, and the investors bumped the price up after the company recently delivered quarterly results that gave them the confidence to do so.

Macy's confirmed it received the new proposal and said its board would take it under review. Macy's management said in January that the prior bid failed to provide compelling value to shareholders. The investors already have a big position in Macy's through funds managed by Arkhouse, which recently nominated nine candidates to the company's board ahead of its annual shareholder meeting set for May 17 to pressure the board and potentially gain another avenue to achieve a takeover.

Macy's has been battered in recent years by stiff competition and shifting shopping patterns, leading to waves of consolidation and bankruptcies in the industry. In 2020 alone, JCPenney, Neiman Marcus, and Lord & Taylor all filed for bankruptcy, to later emerge as smaller or digital-only players. Kohl's was close to a deal to be sold in 2022, but later backed out. More recently, Saks—owned by Hudson's Bay—has been trying to scoop up Neiman Marcus.

Legacy retailers such as Macy's have been burdened by archaic stores and bulky websites, while younger shoppers gravitate to digital-first brands with nimbler operations. Coming out of the pandemic, more consumers are also choosing to head to local shopping centers over suburban malls traditionally anchored by department stores. This year, Macy's sees sales falling between about 1% and 4%. Macy's is in the midst of a transformation under its new chief executive, Tony Spring, who ascended to the top job Feb. 4 after serving as the company's president and CEO-elect for nearly a year. 

Macy's shares initially jumped on the news late last month, but the stock has since traded back down, closing Friday at $18.01—a far cry from a high of $70 in 2015. Spring said on a conference call with analysts last week that fiscal 2024 will be a transition and investment year. 

Macy's has expressed doubts regarding Arkhouse and Brigade's ability to finance their offer. The company hasn't offered up any due-diligence information to the investors nor has it agreed to sign a nondisclosure agreement, as they have requested. 

Investors may want to keep an eye on Nordstrom"s (JWN). The company will report earnings after the close tomorrow, thus putting it into the news cycle. JWN has been the subject of takeover rumors over the past decade. However, investors should be aware that Nordstrom implemented a shareholder rights plan, known as a poison pill, effective until September 19, 2023, to thwart potential takeover attempts. This defensive strategy entitles shareholders to buy more shares at a half-price discount if any individual or entity unapproved by Nordstrom's board acquires a 10% stake, or in case of an unapproved merger or business combination. While Nordstrom claims the move is not a direct response to any specific takeover bid, it follows the purchase of a 9.9% stake in the company by El Puerto de Liverpool, a Mexican department store chain.

The Macy"s saga will continue to play out in the markets. As M fights back against the Arkhouse offer, market whisperers will point to other department stores that could lure Arkhouse"s money. Any suggestion that JWN is part of this discussion should be met with skepticism given the "poison pill" the company has adopted.